S O P H E O N
2
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7
A N N U A L R E P O R T
Where innovation means business™
Sopheon is an international provider of software and services.
Sopheon’s software applications automate product development
and strategic product planning, delivering efficiencies
and decision support that enable companies to generate
more revenue and profit from product innovation.
Group Profile ............................................................. 2
Statement of Directors’ Responsibilities ...........21
Statement from the Chairman and
Chief Executive Officer ........................................... 6
Financial and Operating Review ............................ 8
Product and Market Overview ............................11
Directors and Advisors .........................................16
Auditors’ Report .....................................................22
Consolidated Income Statement .........................24
Balance Sheets .........................................................25
Consolidated and Company Statement of
Recognized Income and Expense ........................26
Report on Directors’ Remuneration .................17
Cash Flow Statements ...........................................27
Directors’ Report ...................................................18
Notes to the Financial Statements .....................28
Sopheon's software solves the challenge of synchronizing
innovation planning and execution – an industry first –
with new capabilities that address the needs of a growing
range of companies.
Summary Results and Trends
Revenue
EBITDA
Loss before tax
Loss per share
Net assets
Gross cash
Working capital
2007
2006
2005
£'000
£'000
£'000
pence
6,332
113
(443)
(0.3)
6,045
33
4,664
(746)
(303) (1,236)
(0.9)
(0.2)
£'000
£'000
£'000
3,310
2,053
2,140
1,620
1,034
1,667
1,951
1,970
1,932
Working capital is calculated as net current assets after adding back deferred income.
Despite the effect of weakness in the US dollar, we had expected
higher 2007 revenues. EBITDA continued to improve. However
amortization and interest costs linked to the Alignent acquisition
weighed on loss before tax and loss per share.
s
r
e
m
o
t
s
u
C
f
o
r
e
b
m
u
N
140
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
2007
During 2007 we broke through our internal goal
of 100 customers for our core software platforms.
Including new customers secured through the
acquisition of Alignent, by year-end we had 135
licensees.
0
0
0
$
D
S
U
14000
12000
10000
8000
6000
4000
2000
0
30
25
20
15
s
t
i
n
U
10
5
0
2002
2003
2004
2005
2006
2007
Recurring revenue base
Total revenues
License extension orders
We are driving growing levels of recurring revenue
and repeat sales. In US dollar terms we have
grown our business by an annualized average of
41 percent since the launch of Accolade.
6
STATEMENT FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
S t a t e m e n t f r o m t h e C h a i r m a n
a n d C h i e f e x e C u t i v e o f f i C e r
Performance
Two thousand and seven was a year of steady progress in our core operations. However, as the year came to a close, a
number of expected, significant transactions were deferred into 2008. As a result, our revenue performance for the year
showed modest growth. Despite our disappointment over this outcome, we continue to anticipate substantial expansion
in our business. Of the six major transactions that we expected to close in 2007 but were deferred, two have now
been signed, three remain in negotiations and one has concluded a small initial order. Full-year 2008 revenue visibility
incorporating booked revenue, contracted services business and the run rate of recurring contracts, already stands
above £4 million at the date of this report. We were able to maintain positive EBITDA for the year, even though we
raised the level of investment in R&D and built out our customer services operations. We also completed an acquisition
– funded largely by debt – which we believe is already having a major strategic impact on our business. License sales and
extensions continued to grow in quantity, with 47 transactions compared to 36 the year before, and ended the year with
a licensee base of 135 companies. Our recurring revenue base coming into 2008 was £2.6 million, 50% higher than at the
start of 2007.
Strategy and Product
The acquisition of Alignent will help drive expansion of Sopheon’s business in two areas. First, Alignent’s Vision Strategist
(“VS”) software has extended Sopheon’s solution upstream from our existing position to include strategic product
planning. Second, Alignent’s roster of industry-leading customers has brought Sopheon instant credibility in a range of
new markets, including aerospace, defense and high-tech. Integration of the acquisition has gone very smoothly, with
people, facilities, and resources successfully consolidated in the third quarter. We closed six new sales of VS by year-end.
We also converted the vast majority of recurring contracts that came due for renewal in the period.
In parallel with commercial activities, we have continued to invest heavily in product development. During 2007, our
development team released two new versions of VS to the market, including features which integrate the software to our
core Accolade software. In addition, we have just introduced the most significant new release of Accolade since it was
launched more than six years ago. This new version of Accolade offers functionality that positions the product beyond
our historical process manufacturing markets, and into the large aerospace, defense and automobile sectors which we are
now entering.
The combination of Accolade and VS is the first in the industry to integrate product planning and product development
execution.
STATEMENT FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
7
People
Our ability to deliver value to our customers is a testament to Sopheon people in all parts of our company, many of
whom have been working tirelessly for several years to build the business we have today. We thank them for their
continuing contribution to our growing success.
Sopheon’s executive management team has also been in place for several years, comprised of the two of us, along with
CFO Arif Karimjee, Paul Heller our CTO, and Huub Rutten our head of research and development. The Sopheon plc
board is made up of three executive directors, augmented by three non-executive directors who bring a wealth of
knowledge and experience to our business. Details about each of us are on the inside back cover of this report.
In order to help accelerate our growth transition, we have taken steps to fortify our senior-management team in the US.
During the second quarter we added executive leaders for our North American sales and client services organizations.
Each brings considerable experience from Lawson Software and Oracle respectively.
Outlook
Sopheon has built a strong stable of 135 licensed customers spread across the key vertical markets that we have chosen
to address. Our results for 2007 demonstrate how our customer base is leading to rising levels of repeat business
and recurring revenues, which are providing, at last, an element of the predictability which has proved so elusive for us.
Initial indications are that our newly released Accolade 7.0, further enhanced by the opportunity to integrate with Vision
Strategist, is being received well by the market. We believe this will further underpin growth and solidify our leadership
position. It is very gratifying to have Accolade recognized by members of the analyst community not just as a best-of-
breed offering, but now as the most mature solution of its kind.
This growing reputation coupled with the increasing recognition of the importance of our chosen market, is leading to
more competition from major enterprise software vendors as well as new entrants. Staying on top of this fast changing
competitive landscape is challenging for a company our size, which is why we continue to invest in expanding our
partnership and reseller network. Our successful ongoing business at General Motors, delivered alongside Hewlett-
Packard, is just one example of the partner model we are working to develop.
We remain alert to potential shifts in buying patterns caused by the increasingly turbulent financial environment, and are
aware that this could have an impact on our business. However, when appropriate, we do emphasize the benefits that
our solutions can bring to organizations facing both financial and competitive pressures.
The backdrop set out above, together with the pipeline of business built up in the later stages of 2007, lead us to expect
a good start to the current year, reinforced by the fact that revenue visibility already stands above £4 million. This will
contribute to getting us back on track for more significant growth and an improved performance for the full year of 2008.
We look forward with optimism to the challenges and potential rewards ahead.
Barry Mence
Executive Chairman
26 March 2008
Andy Michuda
Chief Executive Officer
8
FINANCIAL AND OPERATING REVIEW
f i n a n C i a l a n d o p e r a t i n g r e v i e W
Trading Performance
Sopheon’s consolidated turnover grew to £6.3 million (2006: £6.0 million). As in the prior year, the declining value of the
US dollar has continued to weigh on reported performance. In dollar terms, revenues were $12.7 million compared to
$11.2 million in 2006. The Alignent business acquired in June 2007 contributed $1.2 million to this increase. Augmented
by orders for the Alignent product, total license transactions including extension orders rose from a total of 36 in 2006
to 47 in 2007. From a geographical standpoint, revenues for our US business increased by approximately 50 percent.
However, this was offset by a reduction in Europe. In 2006 our European business closed an unusually high value order
which contributed $2 million in revenues during that year.
The geographical pattern of our revenues shifts from year to year, with the US delivering greater revenues in 2005 and
2007, and Europe greater revenues in 2004 and 2006. This does not in our view reflect a particular trend of growth in
one region or another, but simply illustrates the substantial impact that the timing of a small number of orders can have,
an impact which is magnified for the results of a particular region.
Although the level of revenue growth in 2007 was clearly disappointing, annualized average growth of the business since
the launch of Accolade seven years ago is approximately 40 percent in US dollar terms. Although we look forward to
consistently strong underlying growth in our business, we believe that our performance in any particular period will
remain relatively unpredictable for some time to come. This is a function of continued variation both in sales cycle times
and transaction values.
Business Mix
Overall, in 2007 our business delivered a 34:29:37 ratio of license, maintenance, and service respectively compared to
37:25:38 in the prior year. We believe that the proportion of license revenues will rise in 2008, assisted in part by the
effect of the transactions that were deferred from the end of 2007.
We expect our consulting revenues to continue to grow well and to provide a source of stability and maturity to
our business. Our 2007 implementations consistently met or exceeded customer expectations, as rated by the client
executives who invested in Accolade. Alongside this achievement, we delivered £1.2 million (2006: £0.6 million) of
services to existing customers that required additional configuration and consultancy work. While we are very proud of
the achievements of our services organization, we believe that in time, services will moderate as a proportion of our total
revenues, due to the effect of license business coming through partners for which associated services work is unlikely to
be performed by Sopheon.
Recurring income has grown to £2.6 million coming into 2008, compared to £1.7 million a year before. The majority of
this income is represented by maintenance services, but also includes hosting services and license rentals. Approximately
half of our year-on-year growth can be attributed to license rental income from Alignent customers that subscribe to our
software on a rental basis, as opposed to having purchased a perpetual license which is the traditional Sopheon model.
Overall gross margins have held fairly steady at 73 percent (2006: 72 percent).
Research and Development Expenditure
During 2007 our R&D effort focused on two primary areas. First, we invested in two new releases of the former
Alignent’s Vision Strategist product planning software, including the incorporation of portfolio management capabilities
derived from our core Accolade product. This development is generating considerable interest from the existing Vision
Strategist client base. Second, our product development organization completed the coding for the most significant new
version of Accolade release in Sopheon’s history. This new version of the offering will extend our value not only to the
process manufacturing markets we have historically targeted, but also to the large aerospace, defense and automobile
sectors which we are now entering. Market roll-out of Accolade version 7.0 has begun in the first quarter of 2008,
starting with release of the new software to our existing customers.
FINANCIAL AND OPERATING REVIEW
9
We had planned a material expansion of our product development team during the course of 2007 in connection with
the anticipated completion of Accolade 7.0, and this was further extended by the acquisition of Alignent. Accordingly,
during the year we increased this team from a staff of 16 to 29, underlining Sopheon’s commitment to product leadership.
Ignoring the effect of the capitalization and amortization of such costs, total R&D expenditure increased by over £0.3
million compared to the previous year.
As a result of the above, £0.8 million (2006: £0.5 million) of our 2007 R&D expenditure met the criteria of IAS38 for
capitalization.
Operating Costs and Results
Overall staff costs have increased by approximately £0.6 million, due largely to an increase in headcount over the course
of the year from 65 to 92, of which 10 can be attributed to the acquisition of Alignent in June. The financial effect of this
increased headcount was mitigated by three factors: (i) the increasing weakness of the US dollar reduced the reported
cost of the additional staff that were taken on in America; (ii) a reduced bonus was earned by the group’s employees
in 2007; and (iii) a greater proportion of customer services work was performed by our own staff rather than by
subcontractors. The services staff expanded from 18 to 25 during the course of the year.
Distribution costs are higher than the previous year, reflecting both the additional staff afforded by the acquisition of
Alignent and approximately £0.1 million of amortization of intangible assets acquired with Alignent. Administration costs
increased by £0.2 million, and much of this increase can be attributed to increases in share-based compensation and
depreciation of assets acquired with Alignent, as well as £0.1 million of provisions against investments and loans to the
group’s reseller partners. Sopheon operates a conservative policy with regard to the recoverability of such investments.
We achieved a consolidated EBITDA profit of £0.1 million (2006: £0.03 million). This total reflects a deduction of
share-based payments of £0.1 million (2006: £0.1 million) but excludes depreciation and amortization charges of
£0.5 million (2006: £0.3 million) for the year and net interest costs of £0.1 million (2006: £0.0 million). In common with
other businesses in our sector, Sopheon measures its annual performance using EBITDA (Earnings before Interest, Tax,
Depreciation and Amortization) which the board believes provides a useful indicator of the operating performance of our
business by removing the effect on earnings of tax, capital spend and financing. EBITDA is further defined and reconciled
to the retained loss in Note 12 of the financial statements.
Including the effect of interest, depreciation and amortization, the retained loss for the year was £0.4 million (2006: £0.3
million) and the loss per ordinary share was 0.3p (2006: 0.2p).
Acquisition
On 11 June 2007 Sopheon announced the acquisition of Alignent Software Inc (“Alignent”). Based in California, USA,
Alignent is one of only a few suppliers worldwide that specializes in the provision of strategic product and technology
roadmapping software for complex global companies. Further details of the strategic benefits that Sopheon expects to
derive from the acquisition are set out in the Product and Market Overview which can be found on page 11.
The maximum consideration for the acquisition was $5.50 million, comprising $4.75 million initially upon closing, and a
further $0.75 million in potential earn-out payments. The earn-out objectives were linked to aggressive targets for sales
performance in the second half of 2007, which were not achieved. Accordingly, no earn-out payment is due. The initial
consideration was reduced by the book value of net liabilities of Alignent assumed at the closing, which amounted to
$1 million. Accordingly, the initial cash consideration was $3.75 million. In addition, Sopheon incurred transaction
expenses for the acquisition of approximately $0.2 million. The cash consideration, transaction expenses and working
capital for the combined group were funded by (i) $3.5 million of new medium-term debt as described below and (ii)
raising £2.1 million (before expenses) by the placing of 12,000,000 new Sopheon ordinary shares at 17.5p per share.
International Financial Reporting Standard 3 “Business Combinations” requires that the fair value of assets and liabilities
acquired, including intangible assets, should be measured at the date of acquisition. International Accounting Standard
38 “Intangible Assets” requires that intangible assets acquired as part of a business combination should be separately
recognized if the assets meet certain criteria. Accordingly, technology and customer relationships acquired as part of the
Alignent acquisition were valued at $4 million (£2 million) upon acquisition and are included in Sopheon’s balance sheet
at 31 December 2007. These assets are being amortized over four and eight years respectively. In addition, Sopheon has
recognized $1 million (£0.5 million) of residual goodwill, which is also included as an intangible asset at 31 December
2007. Further details are set out in notes 14 and 15 of the financial statements.
1 0
FINANCIAL AND OPERATING REVIEW
Financing and Balance Sheet
Net assets at the end of the year stood at £3.3 million (2006: £1.6 million) and include £3.7 million (2006: £0.8 million)
of intangible assets. This includes £1.4 million being the net book value of capitalized research and development (2006:
£0.8 million) and an additional £2.3 million (2006: £nil) being the net book value of Alignent intangible assets acquired as
described above.
As part of the funding raised for the Alignent acquisition, Sopheon secured $3.5 million of medium-term debt from
BlueCrest Capital Finance LLC (“BlueCrest”). The debt is being repaid in 48 equal monthly installments, and is secured by
a debenture and guarantee from Sopheon plc. BlueCrest also offered the enlarged group an additional $750,000 revolving
credit facility secured on accounts receivable, which has replaced the $1 million facility previously in place with Silicon
Valley Bank. Further details are set out in Note 20 of the financial statements.
Gross cash resources at 31 December 2007 amounted to £2.1 million (2006: £1.0 million). Short-term borrowings
connected with the group’s revolving facilities amounted to £0.4 million (2006: £0.4 million). A surge of sales at the end
of 2006, which did not recur at the end of 2007, resulted in trade and other receivables reducing from £2.5 million to
£2.3 million year over year.
Corporate
In June 2006 Sopheon filed a certification with the US Securities and Exchange Commission (“SEC”) on Form 15 to
immediately suspend its duty to file reports under the Securities Act of 1934. This has saved us filing costs. However,
the acquisition of Alignent could have required Sopheon to resume SEC reporting unless it terminated its registration.
Accordingly, pursuant to recently adopted Rule 12h-6(i) of the Exchange Act, on 28 December 2007 we filed a
certification with the SEC on Form 15F, in order to effect such termination. Sopheon’s ordinary shares are not traded on
any US Stock Exchange, and this change will have no effect on the trading of Sopheon’s shares on AIM or Euronext.
During 2007 we agreed terms to extend Sopheon’s equity line of credit facility with GEM Global Yield Fund Limited
("GEM") for a further two-year period through to 23 December 2009. GEM agreed to implement this extension at no
cost to Sopheon. The facility has been used to raise working capital once, in March 2004, leaving approximately 90% of
the original €10m facility available under the extended agreement. Drawings under the GEM equity line of credit are
subject to conditions, including the prevailing trading volumes in Sopheon shares, which are described in detail on page 29.
PRODUCT AND MARKET OVERVIEW
1 1
p r o d u C t a n d m a r k e t o v e r v i e W
Sopheon’s Solutions
The need to create sustainable market differentiation is a universal challenge for today’s manufacturing and service
companies. A sure way of supporting such differentiation is by focusing research and development (R&D) investments on
the continuous generation of innovative products that are uniquely suited to end-user requirements. The rewards include
consistent improvement in earnings performance and steady growth in the value delivered to shareholders.
More than half of today’s corporate executives are dissatisfied with the business return their organizations receive from
R&D investments. Often those investments are undercut by poor execution. Recent studies show that, on average,
corporations fail to implement 35 percent of their strategic initiatives. An estimated 65 percent of companies also
struggle to keep product portfolios and development activity aligned with corporate strategic plans. A root cause of
these issues is the fact that in most organizations, product planning and product development execution are independent,
complex processes. What’s more, they are typically carried out by multiple, geographically dispersed teams and functions,
with little emphasis on making sure that innovation projects fit the business’ long-term strategies.
Sopheon’s software synchronizes corporate strategic product plans with the execution of new product development,
commercialization and management. Our solutions are the first in the industry to address and successfully resolve the
synchronization challenge.
Sopheon’s accolade® system is used by manufacturing companies to automate their processes for developing new
products. our vision Strategisttm solution automates processes for strategic product planning. as an integrated offering,
they constitute the first software system in the history of product lifecycle management that is able to synchronize
product, market and technology planning with day-to-day product development activity.
Sopheon has two principal offerings. Its Accolade® solution is a modular software system specially designed to increase
work efficiency and improve decision-making in the development and management of new products. Products fall into
three general categories. The first is comprised of new products that are funded and already under development. The
second is made up of products that have yet to be funded but are on the roadmap for possible future investment. The
third category consists of products that have been commercialized and are contributing to the revenue and profit
performance of the company. Accolade provides a central repository for storing and managing data and information on
all types of product innovation projects across the organization. This centralization, augmented by easy access to the
stored data, enables executives and product development teams to make quicker, more informed decisions. Accolade
also automates the management of the product lifecycle, allowing the user to track the business opportunities and risks
associated with products from their inception as ideas to their retirement from the marketplace.
Sopheon’s other principal offering, Vision StrategistTM ("VS"), automates and manages the customer’s strategic product
planning process. Acquired in mid-2007 as part of Sopheon’s purchase of Alignent Software, the solution helps companies
reduce the uncertainty and risks associated with making portfolio decisions by allowing them to visualize the likely impact
of external market factors on innovation plans. Roadmaps created by the VS system can be used to project and analyze
accolade® is a registered trademark of Sopheon plc.
vision Strategisttm is a trademark of Sopheon plc.
1 2
PRODUCT AND MARKET OVERVIEW
the future of everything from products, markets and technologies to the competitive landscape. The software simplifies
the complex task of product roadmapping and improves long-term decisions on innovation projects.
The integration of Accolade and Vision Strategist creates the only comprehensive strategic product planning and
innovation process support solution in the marketplace. The offering ties product, market and technology roadmapping
directly to the operational aspects of product development. Use of Sopheon’s software creates a work environment that
demystifies research and development by providing dynamic, real-time visibility to planning and project information and
aligning innovation efforts across the organization. It allows executives and cross-functional teams to more effectively
assess the business opportunities and risks associated with product innovation, make better innovation decisions, and
operate at new levels of efficiency.
Benefits reported by users of Sopheon’s software include faster time-to-market, reductions in new product failure rates,
and substantial increases in the financial contribution from new products. Some customers have credited Sopheon’s
solutions with enabling them to grow the amount of profit and revenue they generate from new products by as much as
40 percent.
The Market
Sopheon’s solutions belong to a major class of software applications that concentrate on supporting product lifecycle
management (PLM). The purpose of this applications group is to help companies develop and execute their product
strategies.
p p m i S t h e f a S t e S t- g r o W i n g S e g m e n t o f p l m ,
W i t h a f o r e C a S t e d 1 5 % C a g r t h r o u g h 2 0 1 1 .
“t he tal e o f two p pm ven do r s : ide fo lds , So pheon grow s”
au gust 20 07
– am r researc h
Sopheon
Product Portfolio Management
Business Case, Risk Mgt, Strategic Product Planning
The PLM market is made of multiple submarkets. Some of these submarkets, such as product data management (PDM),
are mature. Others are new and emerging. One of the emerging submarkets is called “Product Portfolio Management”
(PPM). It is the area where Sopheon
is focused. Analyst research indicates
that PPM is among the fastest
growing submarkets within PLM,
and they expect its exceptional
rate of expansion to continue.
Software solutions in most areas
of product lifecycle management
concentrate on the engineering
or technical challenges involved in
managing a product while it is under
development. Sopheon’s solutions
are designed instead to address the
business challenges associated with
product innovation, including the
management of innovation risk and
reward.
ERP/CRM
Sales, Supply Chain, Mfg Costs, Sales Forecasts
Project Management
Project Schedules, Actuals, Resource Data
PDM
CAD Diagrams, Change Orders, BOMs
Business analysts have placed Sopheon’s accolade system in a subclass of
product lifecycle management applications referred to as product portfolio
management solutions.
PRODUCT AND MARKET OVERVIEW
1 3
Analysts have labeled Accolade as best-of-breed among solutions in the product portfolio management subclass. They
view PPM as a strategically critical applications area. Their research has determined that adoption of PPM methodologies
by cross-functional team members is essential to achieving business impact and success. Companies that implement their
product portfolio management and product development processes using Sopheon’s software system gain a range of
important advantages that include being able to continuously measure and track process improvements.
“ S o p h e o n i S t h e m o S t m a t u r e p r o d u C t p o r t f o l i o
m a n a g e m e n t o f f e r i n g i n t h e m a r k e t t o d a y . ”
“p lm mar ket l an ds c ape: e vo lv ing to e na ble val ue Ch ain ex ce llence”
dec em ber 2 00 7
– amr researc h
In 2007 we saw considerable movement in the PLM market among both established suppliers and new entrants. Many
of the more established PLM vendors were involved in mergers and acquisitions. For instance, UGS was acquired by
Siemens, and Agile was purchased by Oracle. We expect that the level of M&A activity will slow in 2008 as the market
takes time to absorb the transactions from the past year. Also in 2007, IDe, a supplier of PPM solutions against which
Sopheon had competed regularly, discontinued business. A number of vendors that have historically focused their
software and go-to-market efforts on the project management needs of corporate information technology organizations
stepped-up their attempts to migrate toward the product portfolio management space. The increased number of
competitors and new entrants into our market will continue to challenge Sopheon in its efforts to sustain its position of
market leadership.
Growth Strategy
As we reported last year, Sopheon has been pursuing a five-part growth strategy and we have made significant progress in
2007. Further details are set out below.
1) Expand Within Client Base
Sopheon entered 2007 with a customer base of 87 companies. We exited the year with 135 customers. In November
we signed our 100th Accolade account, a milestone that attests to both the health of our company and the advancing
maturity of our solutions in the marketplace. As the size of our customer population continues to expand, so, too, do
Sopheon’s opportunities for growth. In 2007 the number of orders from existing customers to extend their licenses
for our Accolade software rose to 25, compared to 20 in 2006. We expect that the recent addition of Vision Strategist
to our line of solutions, along with continued Accolade extension activity, will drive consistent growth from within our
customer base in the future.
“SABMiller’s organic growth depends upon the creation of strong, locally driven brand portfolios. Accolade will
help us overcome the challenges of our decentralized approach to innovation across regional hubs. In addition
to giving us an efficient, unified process structure, the system’s features will guard against duplication of effort
and allow cross-functional teams responsible for product innovation to more easily share their knowledge. Its
capacity to aggregate regional data will provide corporate executives with essential support in making strategic
portfolio decisions. Accolade gives us a common, coherent way of looking at innovation, and a more effective
way of making it happen.”
— Neil MacGilp, Group Technical Director, SABMiller
1 4
PRODUCT AND MARKET OVERVIEW
2) Expand Product
In early 2007 Sopheon introduced a set of enhancements to its Accolade solution that included a substantial boost to the
power of the system’s core portfolio engine. The new capabilities increased the efficiency with which Accolade users are
able to analyze large, complex product portfolios and communicate information on product development projects within
teams and to executive decision-makers.
Mid-year, Sopheon moved beyond the status of a single-product company with the acquisition of Alignent Software and
its Vision Strategist line of strategic planning software. We have subsequently developed and launched two new versions
of the VS product, expanding its use and value. Many of the recently introduced enhancements had been requested for
some time by existing Vision Strategist customers. We recently announced the integration between VS and the portfolio
management module of our Accolade system. This new offering enables VS clients to generate portfolio reports as output
from their strategic product planning or roadmapping activities. Medtronic, already a Vision Strategist user, is the first to
adopt the solution. We expect many additional VS customers to follow.
“Sopheon continues in its excellent tradition of developing software to meet the needs of the new product
development space. My colleagues and I have been involved with Sopheon since they first introduced the
original Accolade to automate new product development (NPD), and indeed we were on the external advisory
committee for the design of Accolade. Accolade has proven to be an excellent product over the years for
managing NPD and supporting the Stage-Gate® process.”
Dr. Robert Cooper
— Co-founder of the Product Development Institute
In 2006 we announced the creation of a RAD (Research & Application Development) organization. The charter of RAD
is to generate new applications that leverage the strength of the Accolade platform but don’t require investment in the
development of product code. In 2007 RAD created and delivered a new electronic lab notebook (ELN) application
that is now used by Land O’ Lakes, a global food and beverage company, across its research and development group. The
software replaces paper notebooks used by scientists and technicians to document research, experiments and procedures
performed in the laboratory. The ELN system offers a range of benefits to users, making content easier to search and
retrieve, supporting collaboration, and enabling greater security. It is integrated with Land O’Lakes’ product development
process which is automated by Accolade. Sopheon believes there is an opportunity to extend the use of this electronic
notebook application to other consumer packaged goods companies and has plans to make it available for sale to the
market.
3) Expand Within Core Markets
Sopheon’s marketing and business development efforts in 2007 continued to focus on manufacturers of chemicals, paper
and, within the consumer packaged goods sector, food and beverage producers. Half of the new customers we gained
during the period were from these core markets.
“It’s important to our business success that we continue to further the maturity of our innovation process.
Accolade will help us capture the metrics needed to track and evaluate the efficiency and predictability of our
process and the business value of the projects that pass through it. Chemistry is our business. But innovation is
our path to creating value for our customers. We view Accolade as a critical component of our value-creation
strategy.”
— Roy Phillips, Global Research and Development Director, Scott Bader
Stage-gate® is a registered trademark of the product development institute.
PRODUCT AND MARKET OVERVIEW
1 5
4) Expand to New Markets
Throughout its history, Sopheon has made ongoing, nominal investments in select new markets as a way of evaluating
opportunities to leverage existing technologies and drive additional business growth. Early in 2007 Sopheon announced
that it was beginning to expand into automotive and aerospace and defense markets. Fifteen percent of Sopheon
customers signed in 2007 came from these new sectors. This expansion was augmented by our acquisition of Alignent
Software, whose customer base was made up almost entirely of aerospace and defense manufacturers. Entering 2008 we
have standing references in all three new market areas, including such leaders as General Motors in automotive, Boeing in
aerospace and the U.S. Navy in defense. Each of the new markets is expected to contribute to Sopheon’s growth during
2008.
“Our success as a developer of weapons systems depends upon being able to anticipate the direction of
technologies and make the right investment decisions. We’re rolling out Sopheon’s Vision Strategist within our
PMA 209 Common Avionics organization, one of NAVAIR’s key programs. The solution allows us to chart and
analyze the impact that forecasted events and trends will have on the technologies that we expect to be core to
the Navy’s capabilities in the future. That is an enormous performance advantage.”
— Suresh Verma, Lead Science & Technology Strategic Planner
Naval Air Systems Command (NAVAIR)
5) Expand Partnerships
reseller partners
As we have indicated, a core element of our strategy for growing through partnerships is to sell our software
solutions through third-party resellers. We previously reported having established affiliate or reseller relationships
with organizations in Germany, Australia, New Zealand, Portugal, France and, most recently, the United Kingdom. We
continue to invest in the development of these partners with the expectation that their contribution to Sopheon’s sales
and financial performance will increase. Our commitment to supporting the success of these relationships was evident
this past January as we convened a global meeting to launch our 2008 business development plans and initiatives. The
event involved three days of intense learning on subjects ranging from imminent new product releases to competitive
intelligence and value-based positioning and messaging. All resellers were in attendance.
We continue to be mindful that it takes time and patience to build a vital, productive reseller network. The volume of
sales generated by our reseller channel during 2007 did not meet our expectations. However, the number and quality
of opportunities in the channel’s sales funnel improved substantially. It follows that we anticipate an increase in business
from our resellers in 2008.
Consulting partners
In 2007, we were encouraged by the increase in commercial activity generated through our consulting partners. This
facet of our partner ecosystem continues to grow in strength and contribution. Consulting partners that have been
engaged in commercial discussions regarding Accolade and/or Vision Strategist include Hewlett-Packard, Arthur D.
Little, Deloitte, Kalypso and PRTM, as well as Robert Cooper and Stage-Gate Incorporated. Although there have been
exploratory talks with other prospective partners in this category, none have resulted in active go-to-market programs.
This is partly due to our strategic focus on working with existing partners more deeply across multiple engagements
before we expand our network beyond this core.
Sopheon continues its relationship with Microsoft as a Gold Certified partner, leveraging Microsoft technology wherever
it brings value to our business development efforts and to our customers. We also continue as a member of the Partner
Advisory Council (PAC) for Microsoft’s EPM project server product line.
“There is no shortage of technology suppliers that sell to the manufacturing industry, but it’s a select club that
really ‘gets’ what manufacturers need. Sopheon has continuously studied its customers and the industry in order
to develop a system that anticipates and responds to the innovation and portfolio management challenges
facing today’s global manufacturing organizations.”
— Michael Jarosik, Editor, START-IT Magazine
1 6
DIRECTORS AND ADVISORS
d i r e C t o r S a n d a d v i S o r S
directors
Barry K. Mence
Andrew L. Michuda
Arif Karimjee ACA
Stuart A. Silcock FCA
Bernard P. F. Al
Daniel Metzger
Executive Chairman
Chief Executive Officer
Finance Director
Non-executive Director
Non-executive Director
Non-executive Director
Secretary
Arif Karimjee
registered office
Surrey Technology Centre
40 Occam Road, Surrey Research Park
Guildford, Surrey GU2 7YG
registered name and number
Sopheon plc.
Registered in England and Wales No. 3217859
Lloyds TSB Bank plc.
77 High Street
Southend-on-Sea
Essex SS1 1HT
Briggs and Morgan
2400 IDS Center, 80 South Eighth Street
Minneapolis, MN 55402
United States
auditors
principal Bankers
Solicitors
aim nominated adviser and Broker
euronext paying agent
registrars
BDO Stoy Hayward LLP
55 Baker Street
London W1U 7EU
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
United States
Hammonds
7 Devonshire Square
Cutlers Gardens
London EC2M 4YH
Loyens & Loeff
Fred Roeskestraat 100
1076 ED Amsterdam
The Netherlands
Seymour Pierce Limited
Bucklersbury House
3 Queen Victoria Street
London EC3N 8EL
Kempen & Co.
Beethovenstraat 300
1077 WZ Amsterdam
The Netherlands
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0LA
financial pr Consultants
Hansard Communications Limited
14 Kinnerton Place South
London SWIX 8EH
Citigate First Financial BV
Assumburg 152A
1081 GC Amsterdam
The Netherlands
REPORT ON DIRECTORS’ REMUNERATION
1 7
r e p o r t o n d i r e C t o r S ’ r e m u n e r a t i o n
The remuneration committee of Sopheon Plc is responsible for oversight of the contract terms, remuneration and
other benefits for executive directors, including performance related bonus schemes. The committee comprises two
non-executive directors, B.P.F. Al, as Chairman, and S.A. Silcock, together with B.K. Mence, other than in respect of his
own remuneration. The committee makes recommendations to the board, within agreed parameters, on an overall
remuneration package for executive directors and other senior executives in order to attract, retain and motivate high
quality individuals capable of achieving the group’s objectives. The package for each director consists of a basic salary,
benefits and pension contributions, together with performance related bonuses and share options on a case by case basis.
Consideration is given to pay and employment policies elsewhere in the group, especially when considering annual salary
increases. From time to time, the remuneration committee may take advice from appropriate remuneration consultants.
Contracts
Service contracts between the company and the executive directors are terminable on 6 months’ notice.
Fees for non-executive directors
The fees for non-executive directors are determined by the board. The non-executive directors are not involved in any
discussions or decisions about their own remuneration.
Directors’ Remuneration
Set out below is a summary of the fees and emoluments received by all directors during the year, translated where
applicable into sterling at the average rate for the period. Mr. Mence’s remuneration is largely fee-based and therefore
subject to fluctuations from period to period. Mr. Michuda’s remuneration is payable in U.S. dollars, the average exchange
rate for which has declined significantly compared with the previous year. Details of directors’ interests in shares and
options are set out in the Directors’ Report.
executive directors
B. K. Mence
A. L. Michuda
A. Karimjee
non-executive directors
S. A. Silcock
B.P.F. Al
D. Metzger
A. M. Davis
pay
and fees
2007
£
125,732
106,255
91,136
18,000
18,000
18,000
-
_______
377,123
_______
_______
Benefits
2007
£
Bonus
2007
£
total
2007
£
total
2006
£
1,670
6,454
1,390
13,750
13,282
8,487
141,152
125,991
101,013
142,388
148,109
107,067
-
-
-
-
_______
9,514
_______
_______
-
-
-
-
_______
35,519
_______
_______
18,000
18,000
18,000
-
_______
422,156
_______
_______
18,000
18,000
18,000
9,000
_______
460,564
_______
_______
The remuneration committee establishes the objectives that must be met for each financial year if a cash bonus is to be
paid. With the principal exception of members of Sopheon’s sales teams, for whom incentives are tied to individual or
territory results, the committee concluded that the cash incentive should be tied to the financial performance of the group
as a whole, and in 2007 objectives were set with regard to both revenue and EBITDA performance. These measures were
applied to, and a bonus was earned by, all members of the executive board and management committee of the group, as
well as the majority of the group’s employees.
In addition to the amounts disclosed above, pension contributions are made to individual directors’ personal pension
schemes. During 2007 contributions of £4,875, £2,253 and £4,396 (2006 - £4,875, £2,228 and £4,167) were paid
respectively to the pension schemes of B. K. Mence, A. L. Michuda and A. Karimjee.
A.M. Davis resigned as a director on 30 June 2006. The emoluments of S.A. Silcock are paid to Lawfords Limited, of which
Mr. Silcock is a director.
1 8
DIRECTORS’ REPORT
d i r e C t o r S ’ r e p o r t
The group’s principal activities during the year continued to focus on the provision of software and services that improve
the return on investment of product development, within the rapidly emerging product lifecycle management (PLM) market.
A review of the development of the business during the year, including the requirements of S234 of the Companies Act
1985, is given in the Statement from the Chairman and Chief Executive Officer on page 6 and subsequent Financial and
Operating Review. This also includes reference to the Group’s future prospects. An overview of the Group’s products and
markets incorporating advances in research and development is provided on page 11.
Corporate Governance
The Sopheon board is committed to high standards of corporate governance and aims to follow appropriate governance
practice, although as a company incorporated in the UK and listed on AIM and Euronext, the Company is not subject
to the requirements of the new UK Combined Code or the Netherlands Tabaksblat Committee. The board currently
comprises three executive directors and three independent non-executive directors. Their biographies appear on the
inside back cover of this annual report, and demonstrate a range of experience and calibre to bring the right level of
independent judgement to the board.
The board is responsible for the group’s system of internal control and for reviewing its effectiveness. Such a system can
only provide reasonable, but not absolute, assurance against material misstatement or loss. The board believes that the
group has internal control systems in place appropriate to the size and nature of its business. The board is also responsible
for identifying the major business risks faced by the group and for determining the appropriate course of action to manage
those risks. Formal meetings are held quarterly to review strategy, management and performance of the group with
additional meetings between those dates convened as necessary. The audit committee, which comprises all of the non-
executive directors and is chaired by Stuart Silcock, considers and determines actions in respect of any control or financial
reporting issues they have identified or that are raised by the auditors. The board has a formal schedule of matters
specifically reserved to it for decision. Details of the constitution of the remuneration committee are provided in the
Report on Directors’ Remuneration on page 17.
Principal Risk Areas
As with any business at its stage of development Sopheon faces a number of risks and uncertainties. The board monitor
these risks on a regular basis. The key areas of risk identified by the board are summarized below.
Sopheon’s markets continue to be at a relatively early stage of development and it is possible that Sopheon's products may not sell
in the quantities or at the prices required to achieve sustained profitability. The broad market for Sopheon’s software products
continues to emerge and evolve. Sopheon has sought to focus its resources on the sub-segments that it believes offer the
best short-term opportunity for growth, and on developing functionality which its research indicates customers in those
segments require. However, determining the potential size, growth rate and needs of a particular market segment remains
challenging.
Sopheon has a history of losses and its prospects of achieving profitability are dependent on meeting sales targets. Sopheon has
in past years experienced substantial net losses due, in part, to its investment in product development and marketing.
Sopheon’s ability to continue to finance its activities through to the point that its operations become cash generative on a
sustained basis is dependent on the group maintaining sales growth, or in the absence of such growth, its ability to secure
funding through the company's facilities or other sources. Details of the resources available to Sopheon and the reasons
why management consider that the company is able to continue as a going concern are set out in Note 2 to the financial
statements.
Some of Sopheon’s competitors and potential competitors have greater financial resources than Sopheon. Sopheon remains
a relatively small organization by global standards. Its resources are dwarfed by those of many larger companies that
are capable of developing competitive solutions, and it is difficult to overcome the marketing engine of a large global
firm. Sopheon seeks to compete effectively with such companies by keeping its market communications focused, clear
and consistent with its product and market strategy, and working to deliver first class quality of execution so that
referenceability of the customer base is maximized.
Sopheon is dependent upon skilled personnel, the loss of whom could have a material impact. While service agreements have
been entered into with key executives, retention of key members of staff cannot be guaranteed and departure of such
employees could be damaging in the short term. In addition, as the economic environment has improved, the competition
for qualified employees continues to be difficult and retaining key employees has become accordingly more challenging and
expensive.
DIRECTORS’ REPORT
1 9
Sopheon will require relationships with partners who are able to market and implement its products. Historically, Sopheon has
devoted substantial resources to the direct marketing of its products, and its strategy to enter into strategic alliances and
other collaborative relationships to widen the customer base and create a broad sales and implementation channel for its
products is not yet mature. The successful implementation of this strategy is crucial to Sopheon’s prospects and its ability
to scale effectively. However, Sopheon cannot be sure that it will select the right partners, or that the partners it does
select will devote adequate resources to promoting, selling and becoming familiar with Sopheon's products.
Sopheon could be subject to claims for damages for errors in its products and services. Sopheon may be exposed to claims for
damages from customers in the event that there are errors in its software products or should support and maintenance
service level agreements fail to meet agreed criteria. Sopheon has sought to protect itself from such risks through its
development methodologies, its contract terms and insurance, and is not aware of any such claims at this time.
Share Option Schemes
Details of options granted are shown in Note 30 to the financial statements.
Supplier Payment Policy and Practice
It is the company’s policy that payments to suppliers are made in accordance with those terms and conditions agreed
between the company and its suppliers, provided that all trading terms and conditions have been complied with. At 31
December 2007 the company had approximately 39 days’ purchases outstanding (2006: 47 days).
Auditors
All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any
information needed by the company’s auditors for the purposes of their audit and to ensure that the auditors are aware
of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. A
resolution to reappoint BDO Stoy Hayward LLP as auditors will be put to the members at the Annual General Meeting.
Financial Instruments
Details of the group’s financial instruments and its policies with regard to financial risk management are given in Note 24
to the financial statements.
Directors and Their Interests
The interests of the directors, who held office at the end of the year, in the share capital of the company (all beneficially
held except those marked with an asterisk (*), which are held as trustee), were as follows:
at 31 december
B. K. Mence
A. L. Michuda
A. Karimjee
S. A. Silcock
S. A. Silcock*
B.P.F. Al
D. Metzger
Share options
2007
2006
ordinary Shares
2007
2006
385,000
3,309,251
825,000
-
-
-
285,000
3,248,607
725,000
-
-
25,000
-
14,423,847
155,188
87,667
918,716
98,077
650,000
100,000
14,423,847
155,188
87,667
918,716
98,077
650,000
-
Of the 14,423,847 ordinary shares mentioned above B. K. Mence beneficially owns and is the registered holder of
8,275,227 ordinary shares. A further 2,300,820 ordinary shares are held by Inkberrow Limited, a company in which his
family trust is the major shareholder. In addition he is, or his wife or children are, potential beneficiaries under trusts
holding an aggregate of 3,847,800 ordinary shares, of which trusts directors of Lawfords Ltd., in the Isle of Man, are
trustees and are registered as the holders of such shares. S.A. Silcock is a shareholder in Lawfords Ltd and is a minority
shareholder in Inkberrow Limited.
The following table provides summary information for each of the directors who held office during the year and who held
options to subscribe for Sopheon ordinary shares. All options were granted without monetary consideration.
2 0
DIRECTORS’ REPORT
date of
grant
exercise
price
2 May 2001
2 October 2000
1 January 2001
15 September 2000
15 September 2000
15 September 2000
15 September 2000
B. K. Mence (1)
B. K. Mence (1)
30 April 2002
B.K. Mence (7) 15 April 2005
B.K. Mence (8) 3 May 2006
B.K.Mence (9) 29 June 2007
A. L. Michuda (2)
A. L. Michuda (2)
A. L. Michuda (2)
A. L. Michuda (2)
A. L. Michuda (3)
A. L. Michuda (3)
A. L. Michuda (3)
30 April 2002
A. L. Michuda (4)
A. L. Michuda (4)(5)
5 November 2003
A.L. Michuda (6) 15 April 2005
A.L. Michuda (8)
3 May 2006
A.L. Michuda (9) 29 June 2007
A. Karimjee (1)
A. Karimjee (1)
30 April 2002
A. Karimjee (1)
A. Karimjee (5)(7)
5 November 2003
A. Karimjee (6) 15 April 2005
A. Karimjee (8) 3 May 2006
A. Karimjee (9) 29 June 2007
2 May 2001
B. P. F. Al (1)
22 November 1999
2 May 2001
2 May 2001
77.5p
14.75p
25.25p
22p
19p
184p
230p
322p
368p
427.5p
160p
77.5p
14.75p
16.25p
25.25p
22p
19p
150p
77.5p
14.75p
16.25p
25.25p
22p
19p
77.5p
at 31
december
2006
22,500
100,000
62,500
100,000
-
187,600
7,846
12,501
1,756
16,280
5,030
54,662
487,932
2,225,000
150,000
100,000
-
100,000
12,500
150,000
300,000
62,500
100,000
-
25,000
granted
during
year
-
-
-
-
100,000
-
-
-
-
-
-
-
-
-
-
-
250,000
-
-
-
-
-
-
100,000
-
lapsed
during
year
-
-
-
-
-
(187,600)
-
-
(1,756)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
at 31
december
2007
22,500
100,000
62,500
100,000
100,000
0
7,846
12,501
0
16,280
5,030
54,662
487,932
2,225,000
150,000
100,000
250,000
100,000
12,500
150,000
300,000
62,500
100,000
100,000
25,000
None of the directors exercised any share options during the year.
(1) Exercisable between the third and tenth anniversary of the date of grant.
(2) Fully vested options, which were granted as part of the acquisition of Teltech Resource Network Corporation.
(3) One fourth of these options becomes exercisable on each of the first four anniversaries of the date of grant and they
expire on the tenth anniversary of the date of grant.
(4) One third of these options are exercisable from the date of grant, one third from the first anniversary of the date of
grant and one third from the second anniversary.
(5) Vesting of a proportion of these options was subject to performance conditions relating to the achievement of positive
EBITDA in two successive quarters. The conditions were met.
(6) One third of these options are exercisable from the first anniversary of the date of grant, one third from the second
anniversary, and the remainder from the third anniversary.
(7) 93,846 of these options are exercisable between the third and tenth anniversary of the date of grant and 206,154
options are exercisable as to one third immediately and one third on each of the first and second anniversaries of the
date of grant.
(8) Vesting of one half of these options was subject to performance conditions based on the achievement of certain
financial objectives in 2006. The conditions were met.
(9) Vesting of one half of these options is subject to performance conditions based on the achievement of certain financial
objectives in 2007. The conditions were met.
The mid-market price of Sopheon ordinary shares at 31 December 2007 was 14.25p. During the financial year the mid-
market price of Sopheon ordinary shares ranged from 26p to 14.25p.
Save as disclosed above, no director (or member of his family) or connected persons within the meaning of Section 346 of
the Companies Act 1985 has any interest, beneficial or non-beneficial, in the share capital of the company.
Substantial Shareholdings
The Directors are aware of the following persons who as at 27 March 2008 were interested directly or indirectly in three
percent or more of the company’s issued ordinary shares:
name
B. K. Mence (director)
Norman Nominees Limited
no. of
ordinary
Shares
14,423,847
9,691,260
% issued
ordinary
Shares
9.9
6.7
Mr. Mence’s interest represents direct beneficial holdings as well as those of his family.
Approved by the Board on 26 March 2008 and signed on its behalf by:
A. Karimjee
Director
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF FINANCIAL STATEMENTS
2 1
S t a t e m e n t o f d i r e C t o r S ’ r e S p o n S i B i l i t i e S
i n r e S p e C t o f t h e f i n a n C i a l S t a t e m e n t S
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any
time the financial position of the company, for safeguarding the assets of the company, for taking reasonable steps for the
prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report which complies
with the requirements of the Companies Act 1985.
The directors are responsible for preparing the annual report and the financial statements in accordance with the
Companies Act 1985. The directors are also required to prepare financial statements for the group in accordance with
International Financial Reporting Standards as adopted by the European Union (IFRSs), the rules of the London Stock
Exchange for companies trading securities on the Alternative Investment Market, and Article 4 of the IAS Regulation. The
directors have chosen to prepare financial statements for the company in accordance with IFRSs.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s
financial position, financial performance and cash flows. This requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting Standards Board’s "Framework for the preparation and
presentation of financial statements." In virtually all circumstances, a fair presentation will be achieved by compliance with
all applicable IFRSs. A fair presentation also requires the Directors to:
• consistently select and apply appropriate accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information; and
• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the entity’s financial position and
financial performance.
Financial statements are published on the group's website in accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the group's website is the responsibility of the directors. The directors' responsibility also
extends to the ongoing integrity of the financial statements contained therein.
2 2
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
i n d e p e n d e n t a u d i t o r S ’ r e p o r t t o t h e
m e m B e r S o f S o p h e o n p l C
We have audited the group and parent company financial statements (the ''financial statements'') of Sopheon plc. for the
year ended 31 December 2007 which comprise the Consolidated Income Statement, the Consolidated and Company
Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statement
of Recognized Income and Expense and the related notes. These financial statements have been prepared under the
accounting policies set out therein.
Respective Responsibilities of Directors and Auditors
The directors' responsibilities for preparing the Annual Report, the Directors' Remuneration Report and the financial
statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and have been properly
prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulations and whether the information
given in the Directors’ Report is consistent with those financial statements. We also report to you if, in our opinion, the
company has not kept proper accounting records, if we have not received all the information and explanations we require
for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. The other information comprises only the Directors' Report, the Report on Directors' Remuneration, the
Statement from the Chairman and Chief Executive Officer, the Financial and Operating Review and the Product and Market
Overview. We consider the implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No
person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and
for the purpose of the Companies Act 1985 or has been expressly authorized to do so by our prior written consent. Save
as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
Basis of Audit Opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in
the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors
in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and
company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the financial statements.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
2 3
Opinion
In our opinion:
•
the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of
the state of the group's affairs as at 31 December 2007 and of its loss for the year then ended;
the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European
•
Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's
affairs as at 31 December 2007;
•
the financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation; and
•
the information given in the directors’ report is consistent with the financial statements.
Emphasis of Matter – Going Concern
In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the
disclosures made in Note 2 to the financial statements concerning the group’s ability to continue as a going concern. As
in prior years, these disclosures identify certain factors that indicate the existence of material uncertainties which may cast
significant doubt about the group’s ability to continue as a going concern. As discussed in Note 2, the appropriateness of
the going concern basis remains reliant on the group achieving an adequate level of sales in order to maintain sufficient
working capital to support its activities, or if this objective is not met, being able to raise sufficient additional finance.
BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London
26 March 2008
2 4
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
C o n S o l i d a t e d i n C o m e S t a t e m e n t
f o r t h e y e a r e n d e d 3 1 d e C e m B e r 2 0 0 7
Revenue
Cost of sales
Gross profit
Distribution costs
Research and development expenses
Other administrative expenses
Total administrative costs
Operating loss
Finance income
Finance expense
Loss before tax
Income tax
Loss for the year attributable to equity shareholders of the parent
Loss Per Share
Basic and diluted (pence)
EBITDA
notes
3
2007
£’000
2006
£’000
6,332
(1,703)
_______
6,045
(1,690)
_______
4,629
4,355
(2,523)
(2,401)
(1,027)
(1,462)
(1,028)
(1,232)
(2,489)
(2,260)
(383)
(306)
70
(130)
_______
(443)
-
_______
39
(36)
_______
(303)
-
_______
(443)
_______
_______
(303)
_______
_______
(0.3p)
_______
_______
(0.2p)
_______
_______
113
_______
_______
32
_______
_______
8
9
10
12
12
BALANCE SHEETS AT 31 DECEMBER 2007
2 5
B a l a n C e S h e e t S a t 3 1 d e C e m B e r 2 0 0 7
Assets
non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Non-current receivables
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Borrowings
Trade and other payables
Deferred revenue
Obligations under finance leases
Total current liabilities
non-current liabilities
Borrowings
Obligations under finance leases
Total non-current liabilities
Total liabilities
Net assets
Equity and Reserves
Capital and reserves
Share capital
Other reserves
Translation reserve
Retained losses
Total equity (all attributable to
equity holders of the parent company)
group
Company
notes
2007
£’000
2006
£’000
2007
£’000
2006
£’000
13
14
16
17
18
19
20
21
22
20
22
182
3,725
-
10
––––––––
3,917
––––––––
2,221
2,053
––––––––
4,274
––––––––
8,191
755
1,376
1,552
3
––––––––
3,686
––––––––
1,192
3
––––––––
1,195
––––––––
4,881
––––––––
3,310
––––––––
––––––––
110
848
-
10
––––––––
968
––––––––
2,484
1,034
––––––––
3,518
––––––––
4,486
-
-
6,119
-
––––––––
6,119
––––––––
40
1,391
––––––––
1,431
––––––––
7,550
-
-
6,119
-
––––––––
6,119
––––––––
36
741
––––––––
777
––––––––
6,896
414
1,434
1,010
3
––––––––
2,861
––––––––
-
5
––––––––
5
––––––––
2,866
––––––––
1,620
––––––––
––––––––
-
443
-
-
––––––––
443
––––––––
-
-
––––––––
-
––––––––
443
––––––––
7,107
––––––––
––––––––
1
332
-
-
––––––––
333
––––––––
-
-
––––––––
-
––––––––
333
––––––––
6,563
––––––––
––––––––
25
26
27
27
7,279
73,499
(191)
(77,277)
––––––––
6,679
72,827
(164)
(77,722)
––––––––
7,279
65,734
-
(65,906)
––––––––
6,679
65,062
-
(65,178)
––––––––
3,310
––––––––
––––––––
1,620
––––––––
––––––––
7,107
––––––––
––––––––
6,563
––––––––
––––––––
Approved by the Board and authorized for issue on 26 March 2008
Barry K. Mence
Director
Arif Karimjee
Director
2 6
CONSOLIDATED AND COMPANY STATEMENT OF RECOGNIZED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2007
C o n S o l i d a t e d a n d C o m p a n y S t a t e m e n t
o f r e C o g n i z e d i n C o m e a n d e x p e n S e
f o r t h e y e a r e n d e d 3 1 d e C e m B e r 2 0 0 7
group
Company
2007
£’000
2006
£’000
2007
£’000
2006
£’000
Exchange differences on translation
of foreign operations
Net income/(expense) recognized directly in equity
(27)
–––––––
(27)
(133)
–––––––
(133)
-
–––––––
-
-
–––––––
-
Loss for the year
(443)
–––––––
(303)
–––––––
(1,616)
–––––––
(560)
–––––––
Total recognized income and expense for the year
(all attributable to equity holders of the parent company)
(470)
–––––––
–––––––
(436)
–––––––
–––––––
(1,616)
–––––––
–––––––
(560)
–––––––
–––––––
CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007
2 7
C a S h f l o W S t a t e m e n t S
f o r t h e y e a r e n d e d 3 1 d e C e m B e r 2 0 0 7
Operating Activities
Loss for the year
adjustments for:
Investment revenues
Finance costs
Depreciation of property, plant and equipment
Amortization of intangible assets
Share-based payment expense
Intra-group credits and charges
Provisions against intra-group loans
Operating cash flows before
movements in working capital
Decrease/(increase) in receivables
Decrease/(increase) in payables
Net cash generated from/(used in)
operating activities
Investing Activities
Interest received
Purchases of property,
plant and equipment
Acquisition of business
Recognition of development costs
Intra-group loans
Net cash used in investing activities
Financing Activities
Proceeds of issues of shares
Proceeds from borrowings
Repayment of borrowings
(Decrease)/increase in bank overdrafts
and lines of credit
Interest paid
Net cash from financing activities
Net Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at
the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
Bank balances and cash
group
Company
notes
2007
£’000
2006
£’000
2007
£’000
2006
£’000
(443)
(303)
(1,616)
(576)
(70)
130
94
402
105
-
-
––––––––
218
399
(375)
––––––––
(39)
36
33
305
62
-
-
––––––––
(62)
14
-
-
105
(147)
1,171
––––––––
94
(925)
329
––––––––
(535)
(4)
14
––––––––
(35)
13
-
-
78
(239)
258
––––––––
(501)
2
(15)
––––––––
242
––––––––
(502)
––––––––
(525)
––––––––
(514)
––––––––
70
39
62
35
(78)
(1,894)
(785)
-
––––––––
(2,687)
––––––––
(54)
-
(495)
-
––––––––
(510)
––––––––
-
-
-
(911)
––––––––
(849)
––––––––
-
-
-
(19)
––––––––
16
––––––––
2,011
1,758
(150)
43
-
(4)
2,011
-
-
43
-
-
(37)
(130)
––––––––
3,452
––––––––
1,007
92
(36)
––––––––
95
––––––––
(917)
-
(13)
––––––––
1,998
––––––––
624
-
(13)
––––––––
30
––––––––
(468)
1,034
12
––––––––
1,970
(19)
––––––––
741
26
––––––––
1,209
-
––––––––
19
2,053
––––––––
––––––––
1,034
––––––––
––––––––
1,391
––––––––
––––––––
741
––––––––
––––––––
2 8
NOTES TO THE FINANCIAL STATEMENTS
1 . G E N E R A L I N F O R M AT I O N
Sopheon plc. ("the Company") is a public limited company incorporated in England and Wales. The address of its registered
office and principal place of business is set out on page 16. The principal activities of the Company and its subsidiaries are
described in Note 3.
2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
The financial statements have been prepared in accordance with International Financial Reporting Standards and
Interpretations issued by the International Accounting Standards Board as adopted by the European Union and those
parts of the Companies Act 1985 which apply to companies preparing their financial statements under IFRS. The principal
accounting policies are set out below. The policies have been applied consistently to all the years presented and on a going
concern basis.
The group has adopted the following new standards:
• IFRS 7, Financial Instruments and a complementary amendment to IAS 1 Presentation of Financial Statements – capital
disclosure (effective for accounting periods beginning on or after 1 January 2007). IFRS 7 requires the disclosure of
qualitative and quantitative information about exposure to risks arising from financial instruments, including specified
minimum disclosures about credit risk, liquidity risk and market risk. Where these risks are deemed material to
the group, it requires disclosures based on the information used by key management. It replaces the disclosure
requirements in IAS 32 "Financial Instruments: disclosure and presentation." The amendment to IAS 1 introduces
disclosures about the level and management of an entity’s capital. The group has applied IFRS 7 and the amendment
to IAS 1 to the accounts for the period beginning 1 January 2007.
• IFRIC 8, Scope of IFRS 2 (effective for accounting periods beginning on or after 1 May 2006). IFRIC 8 requires
consideration of transactions involving the issue or grant of equity instruments to establish whether or not they
fall within the scope of IFRS 2. It applies to situations where the identifiable consideration received is or appears to
be less than the fair value of the equity instruments issued. There was no impact on the group's accounts from its
adoption.
• IFRIC 9, Reassessment of embedded derivatives (effective for accounting periods beginning on or after 1 June 2006).
IFRIC 9 requires an assessment of whether an embedded derivative is required to be separated from the host
contract and accounted for as a derivative when an entity becomes a party to the contract. Subsequent reassessment
is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that
otherwise would be required under the contract, in which case reassessment is required. There was no impact on the
group's accounts from its adoption.
• IFRIC 10, Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1
November 2006). IFRIC 10 prohibits impairment losses recognized in an interim period on goodwill and investments
in equity instruments and on financial assets carried at cost to be reversed at a subsequent balance sheet date. There
was no impact on the group's accounts from its adoption.
The following new standards, amendments and interpretations to existing standards have been published that are
mandatory for the group's accounting periods beginning on or after 1 January 2008 or later periods and which the group
has decided not to adopt early. These are:
• IFRS 8, Operating Segments (effective for accounting periods beginning on or after 1 January 2009). This standard
sets out requirements for the disclosure of information about an entity's operating segments and also about the
entity's products and services, the geographical areas in which it operates, and its major customers. It replaces IAS 14,
Segmental Reporting. The group expects to apply this standard in the accounting period beginning on 1 January 2009.
As this is a disclosure standard it will not have any impact on the results or net assets of the group.
• IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on or after 1 January 2009). The revised
IAS 23 is still to be endorsed by the EU. The main change from the previous version is the removal of the option of
immediately recognizing as an expense borrowing costs that relate to qualifying assets, broadly being assets that take
a substantial period of time to get ready for use or sale. The group is currently assessing its impact on the financial
statements.
• IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for accounting periods beginning on or after
1 March 2007). IFRIC 11 requires share-based payment transactions in which an entity receives services as
consideration for its own equity instruments to be accounted for as equity-settled. This applies regardless of whether
the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its
NOTES TO THE FINANCIAL STATEMENTS
2 9
employees under the share-based payment arrangement. It also applies regardless of whether: (a) the employee's
rights to the entity's equity instruments were granted by the entity itself or by its shareholder(s); or (b) the share-
based payment arrangement was settled by the entity itself or by its shareholder(s). Management is currently
assessing the impact of IFRIC 11 on the accounts.
• IAS 32, Amendments relating to Puttable Instruments and Obligations Arising on Liquidation (effective for accounting
periods beginning on or after 1 January 2009). The amendment is intended to improve the accounting for particular
types of financial instruments that have characteristics similar to ordinary shares but are at present classified as
financial liability. Management do not anticipate this to have any impact on the accounts.
• IFRS 3, Revised Business combinations (effective for accounting periods beginning on or after 1 July 2009). The group
is currently assessing its impact on the financial statements.
Going Concern
The financial statements have been prepared on a going concern basis. In reaching their assessment, the directors have
considered a period extending at least 12 months from the date of approval of these financial statements and have
considered both the forecast performance for the next 12 months and the cash and financing facilities available to the
group.
In 2007, the group achieved revenues of £6.3 million and generated a loss of £443,000. The directors are positive
about the direction, focus and momentum of the business and believe that the group’s existing resources and facilities
described below provide it with adequate funding to support its activities through to the point at which they anticipate
that operations will become cash generative on a sustained basis. This is, however, dependent on the group delivering
an adequate level of sales. Furthermore, the time-to-close and the order value of individual sales can vary considerably,
factors which constrain the ability to accurately predict revenue performance.
At 31 December 2007, the group reported net assets of £3.3 million and gross cash resources of £2.0 million. The group
has a £1.8 million loan note from BlueCrest Capital Finance (“BlueCrest”) which is repayable in equal installments of
£45,000 through July 2011. The group also has access to a bank line of credit with BlueCrest which is secured against the
trade receivables of Sopheon’s North American business, and was fully drawn down at 31 December 2007 for a value of
£377,000.
If sales fall short of expectations, the group may need to raise additional finance. Sopheon continues to have access to
the equity markets, as demonstrated by the placing in June 2007 in London of 12 million shares to raise £2 million after
expenses. In addition, the group has access to an equity line of credit facility from GEM Global Yield Fund Limited (“GEM”)
for an aggregate of €10 million for a term, the expiry date of which was recently extended until December 2009. GEM’s
obligation to subscribe for shares is subject to certain conditions linked to the prevailing trading volumes and prices of
Sopheon shares on the Euronext stock exchange. To date Sopheon has made one call on the equity line of credit facility,
raising just under €1 million in March 2004, leaving a maximum €9 million potentially available.
The directors believe that taken as a whole, the factors described above enable the group to continue as a going concern
for the foreseeable future. The financial information does not include the adjustments that would be required if the
company or group were unable to continue as a going concern.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company ("subsidiaries"). Control is achieved where the Company has the power to govern the financial and operating
policies of an entity and to obtain benefits from its activities. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Business Combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the
aggregate of the fair values at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments
issued by the group in exchange for control of the entity being acquired, together with any costs directly attributable to
the business combination. The results of the acquired entities are included in the consolidated income statement from the
date on which effective control is obtained. The identifiable assets, liabilities and contingent liabilities of the entity being
acquired that meet the conditions for recognition under IFRS 3 Business Combinations are recognized at their fair values of
the date of acquisition.
3 0
NOTES TO THE FINANCIAL STATEMENTS
Identifiable intangible assets are capitalized at fair value as at the date of acquisition. The useful lives of these intangible
assets are assessed and amortization is charged on a straight-line basis with the expense taken to the income statement.
Intangible assets are tested for impairment when a trigger event occurs. Useful lives are also examined on an annual basis
and adjustments, where applicable are made on a prospective basis.
Significant Accounting Estimates and Judgements
Management is required to make judgements, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates,
and accordingly they are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in
which the estimate is revised if the revision affects only that period or is in the period of the revision, and future periods
if the revision affects both current and future periods. Assumptions regarding the depreciation of property, plant and
equipment, and the amortization of intangible assets, are set out in notes 13 and 14 respectively. The group's policy with
regard to impairment of such assets is set out below.
Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the group’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary at the date of acquisition.
If, after reassessment, the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of
the entity being acquired exceeds the cost of the business combination, the excess is recognized immediately in profit or
loss. Goodwill is initially recognized at cost and is subsequently measured at cost less any accumulated impairment losses.
For the purposes of impairment testing, goodwill is allocated to those cash-generating units of the group expected to
benefit from the synergies of the business combination. Cash-generating units to which goodwill has been allocated
are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the carrying value of the unit, the impairment loss is allocated
firstly to reduce the carrying cost of any goodwill allocated to the unit and then to any other assets of the unit pro rata
to the carrying value of each asset of the unit. An impairment loss recognized for goodwill is not reversed in a subsequent
period.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for
goods and services provided in the normal course of business, net of discounts and sales related taxes.
Sales of software products are recognized on delivery and when no significant vendor obligations remain. Revenues
relating to maintenance and post contract support agreements are deferred and recognized over the period of the
agreements.
Revenues from implementation and consultancy services are recognized as the services are performed, or in the case
of milestone-based or long-term contracts, recognized on a percentage basis as the work is completed and any relevant
milestones are met, using latest estimates to determine the expected duration and cost of the project.
Leases
Assets held under finance leases are recognized as assets of the group at their fair value at the inception of the lease or,
if lower, at the net present value of the minimum lease payments. The corresponding liability to the lessor is included in
the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of
the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges
are charged to profit or loss.
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant
lease.
Borrowing Costs
All borrowing costs are recognized in profit or loss in the period in which they are incurred.
NOTES TO THE FINANCIAL STATEMENTS
3 1
Retirement Benefit Costs
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. The group does not
operate any defined benefit retirement benefit plans.
Foreign Currencies
The individual financial statements of each group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed in sterling, which is the functional currency of the
parent company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recorded at rates approximating to the transaction rates. At each balance sheet date,
monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-
monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing
on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items are included
in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair
value are included in profit or loss for the period except for differences on the retranslation of non-monetary items, in
respect of which gains or losses are recognized directly in equity. For such non-monetary items, any exchange component
of that gain or loss is also recognized directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations
(including comparatives) are expressed in sterling using exchange rates prevailing on the balance sheet date. Income
and expense items (including comparatives) are translated at the average exchange rates for the period. Exchange
differences arising (including exchange differences on intra-group loans) are classified as equity and transferred to the
group’s translation reserve. Such translation differences are recognized in profit or loss in the period in which the foreign
operation is disposed of.
On disposal of a foreign operation the cumulative exchange differences recognized in the foreign exchange reserve relating
to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on
disposal.
Deferred Tax
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements
and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, but deferred tax
assets are recognized only to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilized.
Deferred tax is calculated at tax rates that have been enacted or substantively enacted at the balance sheet date, and that
are expected to apply in the period when the liability is settled or the asset realized. Deferred tax is charged or credited
to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is
also dealt with in equity.
Property, Plant and Equipment
Computer equipment and fixtures and fittings are stated at cost less accumulated depreciation and any accumulated
impairment losses. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, using the
straight-line method.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or,
when shorter, over the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the
difference between the sale proceeds and the carrying amount of the asset and is recognized in profit or loss.
3 2
NOTES TO THE FINANCIAL STATEMENTS
Investments
Investments in subsidiaries are stated at cost less impairment. Impairment tests are undertaken whenever events or
changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an
investment exceeds its recoverable amount, the investment is written down accordingly.
Externally Acquired Intangible Assets
Externally acquired intangible assets are initially recognized at cost and subsequently amortized on a straight-line basis over
their useful economic lives. The amortization expense is included in administration costs in the income statement.
Internally Generated Intangible Assets (Research and Development Expenditure)
Development expenditure on internally developed software products is capitalized if it can be demonstrated that:
• it is technically feasible to develop the product
• adequate resources are available to complete the development
• there is an intention to complete and sell the product
• the group is able to sell the product
• sales of the product will generate future economic benefits; and
• expenditure on the product can be measured reliably.
Capitalized development costs are amortized over the period over which the group expects to benefit from selling the
product developed, typically over four years.
Development costs not satisfying the above criteria and expenditure on the research phase of internal projects are
recognized in profit or loss as incurred.
Impairment of Tangible and Intangible Assets (Excluding Goodwill)
At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is
not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing the value in use, the
estimated future cash flows are discounted to their net present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying
amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized
immediately in the administrative expenses line item in the income statement, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying value of the asset or cash-generating unit is increased to
the revised recoverable amount, but so that the increased carrying amount does not exceed the carrying amount which
would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss
is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the
reversal of the impairment loss is treated as a revaluation increase.
Financial Instruments
1. Financial Assets
The group’s financial assets fall into the category of loans and receivables. The group does not have any financial assets
in the categories of fair value through profit and loss or available for sale. The group has not classified any of its financial
assets as held to maturity.
Unless otherwise indicated, the carrying values of the group’s financial assets are a reasonable approximation of their fair
values.
NOTES TO THE FINANCIAL STATEMENTS
3 3
loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise principally through the provision of goods and services (e.g., trade receivables) but also include
cash and cash equivalents and other types of contractual monetary asset. They are initially recognized at fair value plus
transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortized cost using
the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is
not considered material.
Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties, default or
significant delay in payment on the part of the counterparty) that the group will be unable to collect all the amounts due
under the terms of the receivable, the amount of such provision being the difference between the net carrying amount and
the present value of the future expected cash flows associated with the receivable. For trade receivables, such provisions
are recorded in a separate allowance account with the loss being recognized within administrative expenses in the income
statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
2. Financial Liabilities
The group classifies its financial liabilities in the category of financial liabilities measured at amortized cost. The group does
not have any financial liabilities at fair value through profit or loss.
Unless otherwise indicated, the carrying values of the group’s financial liabilities are a reasonable approximation of their fair
values.
financial liabilities measured at amortized Cost
Financial liabilities measured at amortized cost include:
• Trade payables and other short-dated monetary liabilities, which are initially recognized at fair value and subsequently
carried at amortized cost using the effective interest rate method.
• Bank and other borrowings, which are initially recognized at fair value net of any transaction costs directly attributable
to the acquisition of the instrument. Such interest-bearing liabilities are subsequently measured at amortized cost
using the effective interest rate method, which ensures that the interest expense over the period to repayment is at
a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes
initial transaction costs and premiums payable on redemption, as well as any interest payable while the liability is
outstanding.
3. Share Capital
Financial instruments issued by the group are treated as equity only to the extent that they do not meet the definition of
a financial liability. The group’s ordinary shares are classified as equity. For the purpose of the disclosures given in note
24(d), the group considers its capital to comprise its ordinary share capital, share premium and other capital reserves less
its accumulated retained loss.
Share-based Payments
The group issues equity-settled, share-based payments to certain employees. Equity-settled, share-based payments are
measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value
determined at the date of grant is expensed on a straight-line basis over the vesting period, based on the group’s estimate
of the shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
Fair value is measured by the binomial option-pricing model. The expected life used in the model had been adjusted, based
on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.
As set out in Note 25, the group has also issued warrants to certain financing institutions which are also treated as equity-
settled, share-based payments and expensed over the life of the warrant instrument as set out above.
3 4
NOTES TO THE FINANCIAL STATEMENTS
3 . R E V E N U E
All of the group’s revenue in respect of the years ended 31 December 2007 and 2006 derived from the group’s single
business segment, the design, development and marketing of software products with associated implementation and
consultancy services.
Continuing Operations
Software and associated consultancy services
4 . G E O G R A P H I C A L S E G M E N T S
2007
£’000
2006
£’000
6,332
–––––––
–––––––
6,045
–––––––
–––––––
The group’s primary reporting format for segment information is geographical segments. Information relating to the
group’s geographical segments, which are North America, United Kingdom and Rest of Europe, is given below. The group’s
principal operations are based in the United States, the United Kingdom and the Netherlands.
For management purposes, the group is organized as a single business segment, namely the design, development and
marketing of software products with associated implementation and consultancy services. Therefore, no analysis of the
group’s trading result and balance sheet in terms of a secondary reporting format for business segments is presented in
this note.
The information in the following table relating to sales revenue provides an analysis by the location of customer,
irrespective of the origins of the goods and services.
year ended 31 december 2007
income Statement
External revenues
Inter-segment revenues
Net loss before interest and tax
Depreciation and amortization
Balance Sheet
Capital expenditure
Total assets
Total liabilities
year ended 31 december 2006
income Statement
External revenues
Inter-segment revenues
Net loss before interest and tax
Depreciation and amortization
Balance Sheet
Capital expenditure
Total assets
Total liabilities
north
america
£’000
4,002
564
(44)
(491)
––––––––
74
6,192
(3,792)
––––––––
––––––––
united
kingdom
£’000
1,087
-
(137)
(1)
––––––––
1
1,869
(732)
––––––––
––––––––
rest of
europe
£’000
1,243
555
(202)
(4)
––––––––
3
130
(357)
––––––––
––––––––
north
america
£’000
united
kingdom
£’000
rest of
europe
£’000
2,733
820
(122)
(333)
––––––––
50
3,106
(1,743)
––––––––
––––––––
682
-
(125)
(2)
––––––––
-
1,146
(829)
––––––––
––––––––
2,630
315
(59)
(3)
––––––––
4
234
(294)
––––––––
––––––––
total
£’000
6,332
1,119
(383)
(496)
––––––––
78
8,191
(4,881)
––––––––
––––––––
total
£’000
6,045
1,135
(306)
(338)
––––––––
54
4,486
(2,866)
––––––––
––––––––
NOTES TO THE FINANCIAL STATEMENTS
3 5
5 . L O S S F O R T H E Y E A R
The loss for the year has been arrived at after charging/(crediting):
Continuing Operations
Net foreign exchange (gains)/ losses
Research and development costs (excluding amortization)
Amortization of intangible assets
Depreciation of property, plant and equipment
Operating lease rentals – land and buildings
Operating lease rentals – equipment and vehicles
6 . A U D I T O R S ’ R E M U N E R AT I O N
Audit of the financial statements of the group
2007
£’000
2006
£’000
(49)
707
402
94
265
87
––––––––
––––––––
35
723
305
33
298
78
––––––––
––––––––
2007
£’000
2006
£’000
64
––––––––
––––––––
55
––––––––
––––––––
Fees for the audit of the Company are not segregated from those for the group and are included in the above amounts.
7 . S TA F F C O S T S
Wages and salaries
Social security costs
Pension contributions
Employee benefits expense
Share-based payments expense (all equity-settled)
group
Company
2007
number
2006
number
2007
number
2006
number
3,929
294
76
223
105
–––––––
4,627
–––––––
–––––––
3,476
270
65
201
62
–––––––
4,074
–––––––
–––––––
130
19
10
1
17
–––––––
177
––––––––
––––––––
126
18
10
1
12
–––––––
167
––––––––
––––––––
The average monthly number of employees during the year was made up as follows:
Development and operations
Sales and management
group
Company
2007
number
2006
number
2007
number
2006
number
55
30
–––––––
85
–––––––
–––––––
35
28
–––––––
63
–––––––
–––––––
-
2
–––––––
2
––––––––
––––––––
-
2
–––––––
2
––––––––
––––––––
The above staff costs and the numbers of employees during the year include the executive directors.
The fees and emoluments of all directors were as follows:
Fees and emoluments
Pension contributions
Share-based payments expense (all equity-settled)
2007
£’000
2006
£’000
423
12
29
––––––––
464
––––––––
––––––––
461
11
21
––––––––
493
––––––––
––––––––
3 6
NOTES TO THE FINANCIAL STATEMENTS
No director exercised share options during the year (2006: None).
Pension contributions are to personal defined contribution schemes and have been made for three directors (2006: three)
who served during the year.
The emoluments of the highest paid director were as follows:
Emoluments
Benefits
Pension contributions to defined contribution schemes
Share-based payments expense (all equity-settled)
8 . F I N A N C E I N C O M E
Income on financial assets measured at amortized cost
Interest income on bank deposits
9 . F I N A N C E E X P E N S E
Interest expense on financial liabilities measured at amortized cost
Interest on borrowings
1 0 . I N C O M E TA X E X P E N S E
Income tax expense for the year
The charge for the year can be reconciled to the accounting loss as follows:
2007
£’000
2006
£’000
139
2
5
8
––––––––
154
––––––––
––––––––
139
9
2
9
––––––––
159
––––––––
––––––––
2007
£’000
2006
£’000
70
––––––––
––––––––
39
––––––––
––––––––
2007
£000
2006
£000
(130)
––––––––
––––––––
(36)
––––––––
––––––––
2007
£000
-
––––––––
––––––––
2006
£000
-
––––––––
––––––––
Loss before tax
Tax credit at the UK corporation tax rate of 30 percent
Tax effect of expenses that are not deductible
in determining taxable losses
Other movements
Losses for the year not relievable against current tax
2007
£’000
2007
%
2006
£’000
2006
%
(443)
––––––––
––––––––
(303)
––––––––
––––––––
133
30%
91
30%
(122)
166
(177)
––––––––
-
––––––––
––––––––
(27%)
37%
(40%)
––––––––
-
––––––––
––––––––
(29)
57
(119)
––––––––
-
––––––––
––––––––
(9%)
18%
(39%)
––––––––
-
––––––––
––––––––
NOTES TO THE FINANCIAL STATEMENTS
3 7
The group has an unrecognized deferred tax asset arising from its unrelieved trading losses, which has not been recognized
owing to uncertainty as to the level and timing of taxable profits in the future.
The unrecognized deferred tax asset is made up as follows:
Shortfall of tax depreciation compared to book depreciation
Effect of timing differences arising from capitalization of
internally generated development costs
Unrelieved trading losses
Unrecognized deferred tax asset
2007
£’000
2006
£’000
165
165
(623)
21,904
––––––––
21,446
––––––––
––––––––
(374)
20,329
––––––––
20,120
––––––––
––––––––
At 31 December 2007, tax losses estimated at £57 million were available to carry forward by the Sopheon group, arising
from historic losses incurred. These losses represent a potential deferred tax asset of £21.9 million, based on the tax rates
currently obtaining in the relevant tax jurisdictions.
Of these tax losses, an aggregate amount of £16.8 million (representing £7.7 million of the potential deferred tax asset)
represents pre-acquisition tax losses of Sopheon Corporation (Minnesota), Orbital Software Inc. and Alignent Software, Inc.
The future utilization of these losses may be restricted under section 382 of the US Internal Revenue Code, whereby the
ability to utilize net operating losses arising prior to a change of ownership is limited to a percentage of the entity value of
the corporation at the date of change of ownership.
1 1 . L O S S D E A LT W I T H I N T H E F I N A N C I A L S TAT E M E N T S O F T H E
PA R E N T C O M PA N Y
The loss dealt with in the financial statements of the parent company for the year ended 31 December 2007 was
£1,616,000 (2006: £560,000). The loss in 2007 included a net provision of £1,171,000 (2006: £268,000) against the
company's investment in and loans to subsidiary companies. Advantage has been taken of Section 230 of the Companies
Act 1985 not to present an income statement for the parent company.
1 2 . L O S S P E R S H A R E A N D E B I T D A
Loss per Share
Loss for the purpose of basic earnings per share
Weighted average number of ordinary shares for
the purpose of basic earnings per share
2007
£’000
2006
£’000
(443)
––––––––
––––––––
(303)
––––––––
––––––––
’000s
’000s
140,286
––––––––
––––––––
133,441
––––––––
––––––––
The loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the purpose of
calculating the diluted loss per ordinary share are identical to those used for calculating the basic loss per ordinary share
in both 2007 and 2006. This is because the exercise of warrants to subscribe for 502,790 ordinary shares and of share
options to subscribe for 10,925,314 ordinary shares, details of which are set out in Notes 25 and 30, would have the effect
of reducing the loss per ordinary share and are therefore not dilutive.
3 8
NOTES TO THE FINANCIAL STATEMENTS
EBITDA
The directors consider that EBITDA, which is defined as earnings before interest, tax, depreciation and amortization, is an
important measure, since it is widely used by the investment community. It is calculated as follows:
Loss for the year
Interest expense
Interest income
Amortization of intangible assets
Depreciation of tangible fixed assets
EBITDA
1 3 . P R O P E R T Y, P L A N T A N D E Q U I P M E N T
group
Cost
At 1 January 2006
Additions
Exchange differences
At 1 January 2007
Additions
Acquisitions
Exchange differences
At 31 December 2007
Accumulated Depreciation
At 1 January 2006
Depreciation charge for the year
Exchange differences
At 1 January 2007
Depreciation charge for the year
Exchange differences
At 31 December 2007
Carrying Amount
At 31 December 2007
At 31 December 2006
2007
£’000
2006
£’000
(443)
(303)
130
(70)
402
94
––––––––
113
––––––––
––––––––
36
(39)
305
33
––––––––
32
––––––––
––––––––
Computer
equipment
£’000
furniture &
fittings
£’000
1,644
50
(109)
––––––––
1,585
73
73
22
––––––––
1,753
––––––––
1,564
26
(98)
––––––––
1,492
83
20
––––––––
1,595
––––––––
352
4
(21)
––––––––
335
5
13
7
––––––––
360
––––––––
331
7
(20)
––––––––
318
11
7
––––––––
336
––––––––
158
––––––––
––––––––
93
––––––––
––––––––
24
––––––––
––––––––
17
––––––––
––––––––
total
£’000
1,996
54
(130)
––––––––
1,920
78
86
29
––––––––
2,113
––––––––
1,895
33
(118)
––––––––
1,810
94
27
––––––––
1,931
––––––––
182
––––––––
––––––––
110
––––––––
––––––––
The following rates are used for the depreciation of property, plant and equipment:
Computer equipment
Furniture and fittings
20% to 33% on a straight-line basis
20% to 25% on a straight-line basis
The net carrying amount of property, plant and equipment includes £4,000 (2006: £8,000) in respect of assets held under
finance leases.
Company
The company has no property, plant and equipment.
NOTES TO THE FINANCIAL STATEMENTS
3 9
1 4 . I N TA N G I B L E A S S E T S
group
development technology
and ipr
costs
Customer
relationships
goodwill
total
(internally
generated)
£’000
£’000
£’000
£’000
£’000
Cost
At 1 January 2006
Additions (internally generated)
Exchange differences
At 1 January 2007
Additions (internally generated)
Acquisitions (see Note 15)
Exchange differences
At 31 December 2007
Amortization
At 1 January 2006
Charge for the year
Exchange differences
At 1 January 2007
Charge for the year
Exchange differences
At 31 December 2007
Carrying Amount
At 31 December 2007
At 31 December 2006
1,998
495
(275)
––––––––
2,218
785
-
(36)
-
-
-
––––––––
-
-
700
-
–––––––– ––––––––
700
––––––––
2,967
––––––––
1,234
305
(169)
––––––––
1,370
233
(24)
––––––––
1,579
––––––––
-
-
-
––––––––
-
87
-
––––––––
87
––––––––
1,388
––––––––
––––––––
848
––––––––
––––––––
613
––––––––
––––––––
-
––––––––
––––––––
-
-
-
––––––––
-
-
1,312
1
––––––––
1,313
––––––––
-
-
-
––––––––
-
82
-
––––––––
82
––––––––
1,231
––––––––
––––––––
-
––––––––
––––––––
-
-
-
––––––––
-
-
493
-
––––––––
493
––––––––
-
-
-
––––––––
-
-
-
––––––––
-
––––––––
493
––––––––
––––––––
-
––––––––
––––––––
1,998
495
(275)
––––––––
2,218
785
2,505
(35)
––––––––
5,473
––––––––
1,234
305
(169)
––––––––
1,370
402
(24)
––––––––
1,748
––––––––
3,725
––––––––
––––––––
848
––––––––
––––––––
The amortization period for the internally generated development costs relating to the group’s software products is four
years. The amortization periods for (a) technology & IPR and (b) customer relationships, arising from the acquisition of
Alignent Software, Inc., are four years and eight years respectively.
Goodwill is not amortized but is subject to annual impairment review.
Company
The company has no intangible assets.
4 0
NOTES TO THE FINANCIAL STATEMENTS
1 5 . A C Q U I S I T I O N D U R I N G T H E Y E A R
Acquisition of Alignent Software, Inc.
On 21 June 2007 the group acquired the whole of the share capital of Alignent Software, Inc. (“Alignent”), whose principal
activity is the design, development and marketing of strategic product and technology roadmapping software for complex global
companies. Details of the fair values of identifiable assets and liabilities acquired, purchase consideration and goodwill are as
follows:
Fair Value of Assets Acquired
Property, plant and equipment
Intangible assets (see Note 14)
Technology
Customer relationships
Cash and cash equivalents
Receivables
Payables
Consideration Paid
Cash consideration
Costs of acquisition
Goodwill (see Note 14)
£’000
Book values
£’000
fair value
adjustments
£’000
fair values
86
-
86
-
-
65
149
(846)
––––––––
(546)
––––––––
––––––––
700
1,312
-
-
-
––––––––
2,012
––––––––
––––––––
1,852
107
––––––––
700
1,312
65
149
(846)
––––––––
1,466
1,959
––––––––
493
––––––––
––––––––
The fair values of property, plant and equipment, receivables and payables are the same as the carrying values immediately
prior to the acquisition. The financial statements of Alignent Software, Inc (“Alignent”) were not prepared under International
Financial Reporting Standards and did not recognize the intangible assets included above. Goodwill represents the synergistic
benefits resulting from the enlarged group’s software offering, which synchronizes corporate strategic product plans with the
execution of new product development, commercialization and management. Since the acquisition, Alignent has contributed
an operating profit of £108,000 to the group result. This is stated before deducting £94,000 of interest on the loan from
BlueCrest Capital used to finance the acquisition. In addition, the group has incurred amortization expense in connection with
the intangible assets acquired amounting to £169,000.
If the acquisition of Alignent had taken place at the beginning of the year, the consolidated revenue of the group would have
been £6,700,000. Due to differences between US and International Accounting requirements, Alignent did not have all the
systems and processes required to record data that would enable the computation of consolidated profit or loss as if the
acquisition had taken place at the start of the financial year.
NOTES TO THE FINANCIAL STATEMENTS
4 1
1 6 . S U B S I D I A R I E S
At 31 December 2006 and at 31 December 2007
Cost
Less: Amounts provided
Carrying amount
Company
£’000
41,560
35,441
––––––––
6,119
––––––––
––––––––
Details of the company’s subsidiaries at 31 December 2007 are set out below. Companies marked with an asterisk* are
held via Sopheon UK Ltd. and those with an obelus† are held via Orbital Software Holdings plc. The common stock of
Alignent Software, Inc. is held by Sopheon Corporation, Delaware, USA.
name of Company
place of incorporation
Sopheon Corporation
Minnesota, USA
Sopheon Corporation
Delaware, USA
Alignent Software, Inc.
California, USA
Sopheon NV
The Netherlands
Sopheon UK Ltd.
United Kingdom
Orbital Software Holdings plc.
United Kingdom
Orbital Software Inc.†
Delaware, USA
Sopheon Edinburgh Ltd.†
United Kingdom
Orbital Software Europe Ltd.†
United Kingdom
Network Managers (UK) Ltd.*
United Kingdom
AppliedNet Ltd.*
United Kingdom
Future Tense Ltd.*
United Kingdom
Polydoc Ltd.
United Kingdom
nature of ownership
interest
proportion of
voting rights held
nature of Business
Common Stock
100%
Software sales and services
Common Stock
100%
Software development and
sales
Common Stock
100%
Software sales and services
Ordinary Shares
100%
Software sales and services
Ordinary Shares
100%
Software sales and services
Ordinary Shares
100%
Holding company
Common Stock
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Applied Network Technology Ltd.*
United Kingdom
Ordinary Shares
100%
Employee Share Ownership
Trust
During 2007 the group invested a further £48,000 in companies established to market the group’s software products
in France and New Zealand, in which the group has minority holdings. Full provision has been made against these
investments during the year.
4 2
NOTES TO THE FINANCIAL STATEMENTS
1 7 . N O N - C U R R E N T R E C E I V A B L E
Non-current receivable
2007
£’000
group
2006
£’000
2007
£’000
Company
2006
£’000
10
––––––––
––––––––
10
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
The non-current receivable represents a deposit paid in respect of a property leased by the group.
1 8 . T R A D E A N D O T H E R R E C E I V A B L E S
Amounts receivable from the sale of
software and services
Other receivables
Total receivables
Prepayments and accrued income
2007
£’000
1,980
82
––––––––
2,062
159
––––––––
2,221
––––––––
––––––––
group
2006
£’000
2,358
18
––––––––
2,376
108
––––––––
2,484
––––––––
––––––––
2007
£’000
-
14
––––––––
14
26
––––––––
40
––––––––
––––––––
Company
2006
£’000
-
13
––––––––
13
23
––––––––
36
––––––––
––––––––
Of the trade receivables at 31 December 2006, £1,637,000 being the trade receivables of Sopheon Corporation Minnesota,
were assigned as security to Silicon Valley Bank in respect of the line of credit referred to in Note 20. This line of credit
was replaced during the year by a line of credit from BlueCrest Capital Finance LLC, secured by a debenture and guarantee
of Sopheon plc. and is limited to the lesser of $750,000 (£377,000) and 75 percent of the eligible trade receivables of the
group’s US subsidiaries, which at 31 December 2007 amounted to $2,341,000 (£1,176,000).
Trade and other receivables are stated net of allowances totalling £47,000 (2006: £41,000) for estimated irrecoverable
amounts. The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
A full provision has been made against amounts totalling £39,398,000 (2006: £38,278,000) owed to the company by
subsidiary undertakings, which are due after more than one year and are subordinated to the claims of all other creditors.
1 9 . C A S H A N D S H O R T- T E R M B A N K D E P O S I T S
Cash at bank
Short-term bank deposits
2007
£’000
group
2006
£’000
2007
£’000
1,043
1,010
––––––––
2,053
––––––––
––––––––
310
724
––––––––
1,034
––––––––
––––––––
381
1,010
––––––––
1,391
––––––––
––––––––
Company
2006
£’000
17
724
––––––––
741
––––––––
––––––––
Cash and short-term bank deposits comprise cash held by the group, bank current accounts and short-term bank deposit
accounts with maturities of three months or less and bearing interest at variable rates. The carrying amount of these
assets represents a reasonable approximation to their fair value.
Included in cash at bank of the group is an amount of £36,000 held by the group’s employee share ownership trust.
NOTES TO THE FINANCIAL STATEMENTS
4 3
2 0 . L O A N S A N D B O R R O W I N G S
Current loans and Borrowings
Bank overdrafts
Line of credit
Loan notes (current portion)
non-current loans and Borrowings
Loan notes
Total loans and borrowings
2007
£’000
group
2006
£’000
2007
£’000
Company
2006
£’000
-
377
378
––––––––
755
1,192
––––––––
1,947
––––––––
––––––––
5
409
-
––––––––
414
-
––––––––
414
––––––––
––––––––
-
-
-
––––––––
-
-
––––––––
-
––––––––
––––––––
1
-
-
––––––––
1
-
––––––––
1
––––––––
––––––––
The line of credit and the loan notes are denominated in US dollars.
The loan notes are for an initial principal amount of $3,500,000 repayable in equal installments over the four-year period
to July 2011 and bear interest at a fixed rate of 11.03 percent.
The line of credit bears interest at a variable rate based on a margin of 1.25 percent over the Prime Rate. The line of
credit is a revolving facility limited to the lesser of $750,000 and 75 percent of the eligible trade receivables of the group’s
US subsidiaries.
The loan notes and the line of credit, both of which are provided by BlueCrest Capital Finance LLC, are secured by a
debenture and guarantee provided by Sopheon plc. The company has estimated the risk of this guarantee being called at
5 percent of the carrying value of the loan, and in its own financial statements has included a provision for this amount
within other payables.
The directors consider that the carrying amounts for loan notes and the line of credit represent a reasonable
approximation of the financial instruments’ fair values.
2 1 . T R A D E A N D O T H E R PAYA B L E S
Trade payables
Other payables
Accruals
group
Company
2007
£’000
2006
£’000
2007
£’000
2006
£’000
211
278
887
––––––––
1,376
––––––––
––––––––
377
229
828
––––––––
1,434
––––––––
––––––––
22
184
237
––––––––
443
––––––––
––––––––
34
76
222
––––––––
332
––––––––
––––––––
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs.
The directors consider that the carrying amounts of trade and other payables represent a reasonable approximation to
their fair values.
4 4
NOTES TO THE FINANCIAL STATEMENTS
2 2 . O B L I G AT I O N S U N D E R F I N A N C E L E A S E S
The present value of future lease payments is analyzed as:
Current liabilities
Non-current liabilities
group
2006
£’000
Company
2007
£’000
2006
£’000
2007
£’000
3
3
-
-
3
––––––––
6
––––––––
––––––––
5
––––––––
8
––––––––
––––––––
-
––––––––
-
––––––––
––––––––
-
––––––––
-
––––––––
––––––––
The group leases a telephone system with a net carrying value at 31 December 2007 of £4,000 (2006: £8,000).
Future lease payments are due as follows:
at 31 december 2007
Within one year
Due in one-to-five years
at 31 december 2006
Within one year
Due in one-to-five years
minimum
lease
payments
£’000
3
4
––––––––
7
––––––––
––––––––
minimum
lease
payments
£’000
3
6
––––––––
9
––––––––
––––––––
interest
£’000
present
value
£’000
£’000
-
1
––––––––
1
––––––––
––––––––
3
3
––––––––
6
––––––––
––––––––
interest
£’000
present
value
£’000
£’000
-
1
––––––––
1
––––––––
––––––––
3
5
––––––––
8
––––––––
––––––––
2 3 . O P E R AT I N G L E A S E A R R A N G E M E N T S
At the balance sheet date, the group has outstanding commitments under operating leases in respect of which the total
future minimum lease payments were due as follows:
land &
buildings
2007
£’000
other
2007
£’000
331
98
––––––––
429
––––––––
––––––––
180
15
––––––––
195
––––––––
––––––––
land &
buildings
2006
£’000
257
133
––––––––
390
––––––––
––––––––
other
2006
£’000
214
71
––––––––
285
––––––––
––––––––
Due within one year
Due after one year and within five years
Company
The company has no operating leases.
NOTES TO THE FINANCIAL STATEMENTS
4 5
2 4 . F I N A N C I A L I N S T R U M E N T S
Categories of Financial Assets and Liabilities
The following table set out the categories of financial instruments held by the group. All of the group’s financial assets are
in the category of loans and receivables, and all of its financial liabilities are in the category of financial liabilities measured
at amortized cost.
Financial Assets
loans and receivables
Current financial assets
Trade and other receivables
Cash and cash equivalents
non-current financial assets
Non-current receivable
group
Company
2007
£’000
2006
£’000
2007
£’000
2006
£’000
2,221
2,053
––––––––
4,274
––––––––
––––––––
2,484
1,034
––––––––
3,518
––––––––
––––––––
40
1,391
––––––––
1,431
––––––––
––––––––
36
741
––––––––
777
––––––––
––––––––
10
––––––––
––––––––
10
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
The group does not have any financial assets in the categories of financial assets held for trading or financial assets available
for sale.
Financial Liabilities
Current financial liabilities
Trade and other payables
Loans and borrowings
Obligations under finance lease
non-current financial liabilities
Loans and borrowings
Obligations under finance lease
financial liabilities measured at
amortized cost
group
Company
2007
£’000
2006
£’000
2007
£’000
2006
£’000
1,376
755
3
––––––––
2,134
––––––––
––––––––
1,192
3
––––––––
1,195
––––––––
3,329
––––––––
––––––––
1,434
414
3
––––––––
1,851
––––––––
––––––––
-
5
––––––––
5
––––––––
1,856
––––––––
––––––––
443
-
-
––––––––
443
––––––––
––––––––
-
-
––––––––
-
––––––––
443
––––––––
––––––––
333
-
-
––––––––
333
––––––––
––––––––
-
-
––––––––
-
––––––––
333
––––––––
––––––––
The group does not have any financial liabilities in the category of financial liabilities held for trading.
4 6
NOTES TO THE FINANCIAL STATEMENTS
Financial Instrument Risk Exposure and Management
The group is exposed to risks that arise from its use of financial instruments. This note describes the group’s objectives,
policies and processes for managing those risks and the methods used to measure them.
There have been no changes in the group’s exposure to financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods, unless otherwise disclosed in this note.
principal financial instruments
The principal financial instruments used by the group, from which financial instrument risk arises, are as follows:
• Trade receivables
• Cash and cash equivalents
• Trade and other payables
• Loan notes
general objectives, policies and processes
The Board has overall responsibility for the determination of the group’s risk management objectives and policies and,
while retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that
ensure the effective implementation of the objectives and policies to the group’s finance function. The Board receives
monthly reports from the group finance director through which it reviews the effectiveness of the processes put in place
and the appropriateness of the objectives and policies it sets. The group’s risk management procedures are also reviewed
periodically by the Audit Committee.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the
group’s competitiveness and flexibility. Further details regarding these policies are set out below:
1. Credit risk
Credit risk arises principally from the group’s trade receivables. It is the risk that the counterparty fails to discharge its
obligations in respect of the instrument.
The group’s software is principally marketed at major international corporations of good credit standing, and the group’s
historical bad debt experience is very low. Due to the potentially large size of certain individual sales, in a particular
year, one customer can account for a substantial proportion of revenues recorded. However, such concentrations rarely
persist for multiple years and therefore the directors do not believe that the group is systematically exposed to credit risk
concentration in respect of particular customers. In 2007, the largest single customer accounted for 9 percent of group
revenues but no revenue was recorded for this customer in 2006. Similarly, the largest single customer in 2006 accounted
for 17 percent revenues in that year, but 2 percent of total revenues in 2007.
The following table illustrates the group’s maximum exposure to credit risk by class of financial instruments at the balance
sheet date, including a geographical analysis of exposure in respect of trade receivables:
Trade receivables
North America
United Kingdom
Rest of Europe
Total trade receivables
Cash and cash equivalents
Maximum credit risk exposure
2007
Carrying
value
£’000
2007
maximum
exposure
£’000
2006
Carrying
value
£’000
2006
maximum
exposure
£’000
1,568
377
35
–––––––––
1,980
2,053
–––––––––
4,033
–––––––––
–––––––––
1,568
377
35
–––––––––
1,980
2,053
–––––––––
4,033
–––––––––
–––––––––
1,910
334
114
–––––––––
2,358
1,037
–––––––––
3,395
–––––––––
–––––––––
1,910
334
114
–––––––––
2,358
1,037
–––––––––
3,395
–––––––––
–––––––––
NOTES TO THE FINANCIAL STATEMENTS
4 7
The group's customers are major international corporations of high credit standing and therefore the group does not
typically obtain credit ratings for individual customers. Impairment of trade receivables is very rare and in the three years
ending 31 December 2007 provisions or write-offs against customer receivables amounted in total to approximately
0.5 percent of revenues. Such impairments do not arise from credit defaults but principally from disagreements with a
very small number of former customers over their responsibility for renewal fees for maintenance or hosting contracts.
Sopheon's policy is to pursue collection of such fees but to make provision against the applicable receivable if collection is
uncertain.
The following is an analysis of the group’s trade receivables, identifying the totals of trade receivables which are current and
those which are 30 days or more past due but not impaired:
At 31 December 2007
At 31 December 2006
total
£’000
Current
£’000
past due
+30 days
£’000
past due
+60 days
£’000
1,980
–––––––––
–––––––––
1,864
–––––––––
–––––––––
36
–––––––––
–––––––––
80
–––––––––
–––––––––
2,358
–––––––––
–––––––––
1,593
–––––––––
–––––––––
222
–––––––––
–––––––––
143
–––––––––
–––––––––
The following is an analysis of the group’s provisions against trade receivables, analyzed between the geographical segments
in which the group’s operations are located:
Trade receivables
North America
United Kingdom
Rest of Europe
£’000
gross
value
2007
£’000
provision
£’000
Carrying
value
£’000
gross
value
2006
£’000
provision
£’000
Carrying
value
1,611
381
35
–––––––––
2,027
–––––––––
–––––––––
43
4
-
–––––––––
47
–––––––––
–––––––––
1,568
377
35
–––––––––
1,980
–––––––––
–––––––––
1,915
338
146
–––––––––
2,399
–––––––––
–––––––––
5
4
32
–––––––––
41
–––––––––
–––––––––
1,910
334
114
–––––––––
2,358
–––––––––
–––––––––
The group records impairment losses on its trade receivables separately from the gross amounts receivable. The
movements on this allowance during the year are summarized below:
Opening balance
Increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
2007
£’000
41
39
(14)
(19)
–––––––––
47
–––––––––
–––––––––
2006
£’000
5
36
-
–––––––––
41
–––––––––
–––––––––
The main factors used in assessing the impairment of trade receivables are the age of the balances and the circumstances
of the individual customer.
The company does not have any credit risk in respect of trade receivables. The company has a maximum credit risk in
respect of cash and cash equivalents of £1,391,000 (2006: £741,000) included in the group totals above.
4 8
NOTES TO THE FINANCIAL STATEMENTS
2. liquidity risk
Liquidity risk arises from the group’s management of working capital, and more particularly its ability to reach a point
where its trading is cash generative, together with the finance charges and principal repayments on its debt instruments. It
is the risk that the group will encounter difficulties in meeting its financial obligations as they fall due.
The group’s policy is to maintain significant cash balances, short-term bank deposits, trade receivables and facilities with a
view to having sufficient cash to meet its liabilities when they become due. The Board annually approves budgets including
cash-flow projections for each of the operating companies within the group and receives regular information as to cash
balances held and progress against budget. Attention is particularly drawn to the detailed discussion of the factors which
enable the group to continue as a going concern for the foreseeable future in the section headed “Going Concern” in
Note 2 to the financial statements.
The following table sets out an analysis of the contractual maturity of the group’s financial liabilities that must be settled
gross, based on exchange rates prevailing at the relevant balance sheet date.
group
at 31 december 2007
Trade and other payables
Line of credit
Loan notes
Total financial liabilities
at 31 december 2006
Trade and other payables
Line of credit and overdrafts
Total financial liabilities
Company
at 31 december 2007
Trade and other payables
Total financial liabilities
at 31 december 2006
Trade and other payables
Total financial liabilities
Within
one year
£’000
one to
five years
£’000
total
£’000
1,376
377
378
–––––––––
2,131
–––––––––
–––––––––
-
-
1,192
–––––––––
1,192
–––––––––
–––––––––
1,376
377
1,570
–––––––––
3,323
–––––––––
–––––––––
Within
one year
£’000
one to
five years
£’000
total
£’000
1,434
414
–––––––––
1,848
–––––––––
–––––––––
-
-
–––––––––
-
–––––––––
–––––––––
1,434
414
–––––––––
1,848
–––––––––
–––––––––
Within
one year
£’000
one to
five years
£’000
total
£’000
443
–––––––––
443
–––––––––
–––––––––
-
–––––––––
-
–––––––––
–––––––––
443
–––––––––
443
–––––––––
–––––––––
Within
one year
£’000
one to
five years
£’000
total
£’000
333
–––––––––
333
–––––––––
–––––––––
-
–––––––––
-
–––––––––
–––––––––
333
–––––––––
333
–––––––––
–––––––––
NOTES TO THE FINANCIAL STATEMENTS
4 9
3. market risk
Market risk arises from the group’s use of interest-bearing and foreign currency financial instruments. It is the risk that the
future cash-flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign
exchange rates (currency risk).
The group does not have any financial instruments that are publicly traded securities and is not exposed to other price risk
associated with changes in the market prices of such securities.
4. interest rate risk
The group’s interest bearing liabilities comprise loan notes with a carrying value of £1,570,000 which bear a fixed interest
rate of 11.03 percent and accordingly do not give rise to interest rate risk, together with a line of credit for £377,000
which bears a variable interest rate based on 1.25 percent above the lender’s prime rate. Should this rate vary by
0.5 percent the annualized effect would be to increase or reduce finance costs by £2,000.
The group invests its surplus cash in bank deposits denominated in dollars, euros or sterling, which bear interest based on
short-term money market rates, and in doing so exposes itself to fluctuations in money market interest rates. The group’s
and the company’s surplus cash held in the form of bank deposits at the balance sheet date was £1,010,000
(2006: £724,000). The annualized effect of a movement of 0.5 percent in the average interest rate received on the group’s
and the company’s bank deposits at the balance sheet date would result in an increase or decrease in the group’s and the
company’s interest income of £5,000 (2006: £4,000).
5. Currency risk
The group’s policy is, where possible, to allow group entities to settle liabilities denominated in the functional currency
with cash generated from their own operations in that currency. The group also maintains cash and bank deposits in the
currencies which are the functional currencies of its operating entities, which are the US dollar, the euro and sterling.
The group is exposed to currency risk in respect of such foreign currency denominated bank deposits and bank loans.
Taking into account the fact that a large proportion of the group’s income and expenditure arise in US dollars and, to a
lesser extent, in euros, the group’s policy is not to seek to hedge such currency risk.
Foreign currency risk also arises where individual group entities enter into transactions denominated in currencies other
than their functional currency, with fluctuations in exchange rates giving rise to gains or losses in the income statement.
Where the foreign currency risk to the group is significant, consideration is given to hedging the risk through the forward
currency market and, while this would be an economic hedge of the cash-flow risk, the group does not employ hedge
accounting.
Assets and liabilities of group entities located in the United States and the Netherlands are denominated respectively in
US dollars and euros and are therefore exposed to currency risk giving rise to gains or losses on translation into sterling,
which are recognized directly in equity through the translation reserve. Such assets include the group’s intangible assets,
which are denominated in US dollars, and the group’s line of credit and loan notes, which are also denominated in US
dollars. It is not the group’s policy to hedge its net investments in foreign operations because it judges that the necessary
hedging techniques would involve risks to cash flow.
The following table shows the effects, all other things being equal, of changes to exchange rates on the group’s loss after
tax and on the exchange differences on retranslation of the assets and liabilities of foreign operations which is recognized
directly in equity. It illustrates the effects if the exchange rates for the US dollar and the euro had been higher or lower
than those which actually applied during the year and at the year end.
2007
2006
(increase)/decrease
in loss after tax
2006
2007
effect on
exchange differences
on translation of
assets and liabilities
of foreign operations
£’000
£’000
£’000
£’000
11
(12)
34
(31)
–––––––––
–––––––––
27
(30)
15
(17)
–––––––––
–––––––––
(138)
148
(19)
16
–––––––––
–––––––––
(93)
103
(11)
13
–––––––––
–––––––––
Weakening of US dollar by 10c
Strengthening of US dollar by 10c
Weakening of euro by 10c
Strengthening of euro by 10c
5 0
NOTES TO THE FINANCIAL STATEMENTS
The company holds certain assets, mainly bank deposits, and liabilities denominated in the functional currencies of its
principal operating subsidiaries, which are the US dollar, the euro and sterling. The following table shows the effects, all
other things being equal, of changes to exchange rates at the year end on the loss after tax of the company. It is based on
the company’s assets and liabilities at the relevant balance sheet date.
2006
2007
(increase)/decrease
in loss after tax
£’000
£’000
3
(3)
(93)
108
–––––––––
–––––––––
3
(4)
(52)
46
–––––––––
–––––––––
Weakening of US dollar by 10c
Strengthening of US dollar by 10c
Weakening of euro by 10c
Strengthening of euro by 10c
6. Capital
The group considers its capital to comprise its share capital and share premium and other capital reserves less the
accumulated retained losses. The group is not subject to any externally imposed capital requirements. In managing its
capital, the group’s primary objective in managing its capital is to support the development of the group’s activities through
to the point where they are cash generative on a sustained basis.
The group’s capital is all equity capital and is summarized in Note 27.
2 5 . S H A R E C A P I TA L
authorized
Ordinary shares of 5p each
2007
number
2007
£000
2006
number
2006
£000
175,000,000
–––––––––
–––––––––
8,750 175,000,000
–––––––––
–––––––––
–––––––––
–––––––––
8,750
–––––––––
–––––––––
issued and fully paid
2007
number
2007
£000
2006
number
2006
£000
At 1 January
133,579,027
6,679 133,305,139
6,665
Issued for cash
Issued on exercise of share options
At 31 December
12,000,000
-
–––––––––
145,579,027
–––––––––
–––––––––
600
-
–––––––––
-
273,888
–––––––––
7,279 133,579,027
–––––––––
–––––––––
–––––––––
–––––––––
-
14
–––––––––
6,679
–––––––––
–––––––––
The company has one class of ordinary shares, which carry no right to fixed income.
On 21 June 2007, 12,000,000 new ordinary shares were issued by way of a placing for cash at 17.5p per share to raise
£2.1 million before expenses to fund the cash consideration payable in respect of the acquisition of Alignent Software, Inc.
and the expenses of the transaction, and to provide working capital for the enlarged group. On the same date, 502,790
warrants to subscribe for ordinary shares at a price of 20p per share were issued to BlueCrest Capital Finance LLC in
connection with the financing of the acquisition.
NOTES TO THE FINANCIAL STATEMENTS
5 1
2 6 . C A P I TA L R E S E R V E S
group
At 1 January 2006
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
At 1 January 2007
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
At 31 December 2007
Company
At 1 January 2006
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
At 1 January 2007
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
At 31 December 2007
Share
premium
£’000
50,656
29
-
-
––––––––
50,685
1,411
-
-
––––––––
52,096
––––––––
––––––––
Share
premium
£’000
50,656
29
-
-
––––––––
50,685
1,411
-
-
––––––––
52,096
––––––––
––––––––
merger
reserve
£’000
Capital
redemption
reserve
£’000
Share
options
reserve
£’000
17,944
-
-
-
––––––––
17,944
-
-
-
––––––––
17,944
––––––––
––––––––
2,884
-
-
-
––––––––
2,884
-
-
-
––––––––
2,884
––––––––
––––––––
1,447
-
62
(195)
––––––––
1,314
-
149
(888)
––––––––
575
––––––––
––––––––
merger
reserve
£’000
Capital
redemption
reserve
£’000
Share
options
reserve
£’000
10,179
-
-
-
––––––––
10,179
-
-
-
––––––––
10,179
––––––––
––––––––
2,884
-
-
-
––––––––
2,884
-
-
-
––––––––
2,884
––––––––
––––––––
1,447
-
62
(195)
––––––––
1,314
-
149
(888)
––––––––
575
––––––––
––––––––
total
£’000
72,931
29
62
(195)
––––––––
72,827
1,411
149
(888)
––––––––
73,499
––––––––
––––––––
total
£’000
65,166
29
62
(195)
––––––––
65,062
1,411
149
(888)
––––––––
65,734
––––––––
––––––––
Share premium represents the premium arising on the issue of shares and its use is governed by the provisions of the
Companies Act 1985.
Merger reserve is a non-statutory reserve representing the premium on the issue of shares pursuant to certain past
business combinations which meet specified criteria.
The capital redemption reserve is a non-distributable reserve arising from the cancellation in 2001 of deferred shares.
The share options reserve comprises the value of outstanding share options granted in connection with the acquisitions of
Teltech Resource Network Corporation in 2000 and of Orbital Software Holdings plc. in 2001, together with the fair value
of share-based payments to employees pursuant to the group’s share option schemes and the fair value of warrants to
subscribe for Sopheon shares issued to BlueCrest Capital Finance LLC.
5 2
NOTES TO THE FINANCIAL STATEMENTS
2 7 . C H A N G E S I N E Q U I T Y
group
At 1 January 2006
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
Exchange differences on translation of
foreign operations
Loss for the year attributable to
equity shareholders
At 1 January 2007
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
Exchange differences on translation of
foreign operations
Loss for the year attributable to
equity shareholders
At 31 December 2007
Company
Share
capital
£’000
6,665
14
-
-
Capital
reserves
£’000
translation
reserve
£’000
retained
earnings
£’000
72,931
29
62
(195)
(31)
-
-
-
(77,614)
-
-
195
total
£’000
1,951
43
62
-
-
-
(133)
-
(133)
-
–––––––––
6,679
600
-
-
-
–––––––––
72,827
1,411
149
(888)
-
–––––––––
(164)
-
-
-
(303)
(303)
––––––––– –––––––––
1,620
2,011
149
-
(77,722)
-
-
888
-
-
(27)
-
(27)
-
–––––––––
7,279
–––––––––
–––––––––
-
–––––––––
73,499
–––––––––
–––––––––
-
–––––––––
(191)
–––––––––
–––––––––
(443)
(443)
––––––––– –––––––––
3,310
––––––––– –––––––––
––––––––– –––––––––
(77,277)
Share
capital
£’000
Capital
reserves
£’000
retained
earnings
£’000
total
£’000
At 1 January 2006
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
Loss for the year attributable to equity shareholders
At 1 January 2007
Shares issued at a premium
Recognition of share-based payments
Lapsing of share options
Loss for the year attributable to equity shareholders
At 31 December 2007
6,665
14
-
-
-
–––––––––
6,679
600
-
-
-
–––––––––
7,279
–––––––––
–––––––––
65,166
29
62
(195)
-
–––––––––
65,062
1,411
149
(888)
-
–––––––––
65,734
–––––––––
–––––––––
(64,813)
-
-
195
(560)
7,018
43
62
-
(560)
––––––––– –––––––––
6,563
2,011
149
-
(1,616)
––––––––– –––––––––
7,107
––––––––– –––––––––
––––––––– –––––––––
(65,178)
-
-
888
(1,616)
(65,906)
2 8 . R E T I R E M E N T B E N E F I T P L A N S
The group operates defined contribution retirement benefit plans which employees are entitled to join. The total expense
recognized in the income statement of £76,000 (2006: £65,000) represents contributions paid to such plans at rates
specified in the rules of the plans.
NOTES TO THE FINANCIAL STATEMENTS
5 3
2 9 . R E L AT E D PA R T Y T R A N S A C T I O N S
Details of transactions between the group and related parties are disclosed below.
Compensation of Key Management Personnel
Details of directors’ remuneration are given in Note 7. The total remuneration of directors and members of the group’s
management committee during the year was as follows:
Emoluments and benefits
Pension contributions
2007
£’000
2006
£’000
617
17
–––––––
634
–––––––
–––––––
649
16
–––––––
665
–––––––
–––––––
Transactions with Related Parties Who Are Subsidiaries of the Company
The following is a summary of the transactions of the company with its subsidiaries during the year:
Amounts advanced to subsidiaries by way of interest-free loans
Net management charges to subsidiaries
2007
£’000
2006
£’000
911
209
–––––––
19
239
–––––––
During 2007 and 2006 the company granted share options to employees of subsidiary companies, details of which are
disclosed in Note 30.
Other Related Party Transactions
There were no other related party transactions during the year under review or the previous year.
3 0 . S H A R E - B A S E D PAY M E N T S
Equity-Settled Share Option Schemes
The group has a number of share option schemes for all employees. Options are exercisable at a price equal to the
market price on the date of grant. The normal vesting periods are as set out below.
vesting
Sopheon plc (USA) stock option plan
Sopheon UK approved share option scheme
Sopheon UK unapproved share option scheme
Sopheon NV share option scheme
In three equal tranches between the first and third anniversary of grant
On third anniversary of grant
Immediate or as per USA plan
Immediate or as per USA plan
5 4
NOTES TO THE FINANCIAL STATEMENTS
Details of the share options outstanding during the year are as follows:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Exerciseable at the end of the year
number of
share
options
2007
9,439,665
1,857,500
-
(371,851)
–––––––
10,925,314
–––––––
–––––––
7,752,875
–––––––
–––––––
Weighted
average
exercise
price
2007
£
0.33
0.19
-
1.47
–––––––
0.27
–––––––
–––––––
0.30
–––––––
–––––––
number of
share
options
2006
8,530,716
1,602,500
(273,888)
(419,663)
–––––––
9,439,665
–––––––
–––––––
7,147,165
–––––––
–––––––
Weighted
average
exercise
price
2006
£
0.36
0.22
0.16
0.57
–––––––
0.33
–––––––
–––––––
0.37
–––––––
–––––––
No share options were exercised during the year. The weighted average share price at the date of exercise for share
options exercised during 2006 was 21p. The options outstanding at the end of the year have a weighted average remaining
life of 6.4 years (2006: 7.5 years).
In 2007, share options were granted on 28 June 2007. The exercise price of the options granted on that date was 19p, and
the estimated fair value was 11.25p. In 2006, share options were granted on 15 April 2006 and on 11 October 2006. The
exercise prices of the options granted on those dates were 22p and 18.75p respectively, and the estimated fair values were
13p and 11.1p respectively.
The fair values were calculated using the binomial option-pricing model. The principal assumptions used were:
Share price at time of grant
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
28 June
2007
15 april
2006
11 october
2006
19p
19p
40%
5%
Nil
22p
22p
40%
5%
Nil
18.75p
18.75p
40%
5%
Nil
The expected life of the options used was either five or ten years, depending upon the particular scheme rules.
Expected volatility was determined by reference to the historic volatility of the company’s share price in the period before
the date of grant.
The group recognized total expenses of £105,000 (2006: £62,000) relating to equity-settled, share-based payments during
the year.
3 1 . A P P R O V A L O F F I N A N C I A L S TAT E M E N T S
The financial statements were approved by the Board of Directors and authorized for issue on 26 March 2008.
d i r e C t o r S a n d S e n i o r m a n a g e m e n t
Barry mence, Executive Chairman. Barry Mence has served as executive chairman and as a director and substantial
shareholder of Sopheon since its inception in 1993 when he was one of the founding members. From 1976 to 1990,
Mr. Mence was a major shareholder and group managing director of the Rendeck Group of Companies, a software
and services group based in the Netherlands.
andrew michuda, Executive Director. Andrew Michuda was appointed chief executive officer of Sopheon in September
2000. From 1997 to 2000 he served as chief executive officer and an executive director of Teltech Resource Network
Corporation, which was acquired by Sopheon. He earlier held senior leadership positions at Control Data, including
general manager of the business that evolved into Decision Data, the world's largest independent computer services
provider.
arif karimjee, ACA, Executive Director. Arif Karimjee has served as chief financial officer of Sopheon since February
2000. Mr. Karimjee was previously an auditor and consultant with Ernst & Young in London, Brussels and Reading,
from August 1988 until joining Sopheon.
Stuart Silcock, FCA, Non-executive Director. Stuart Silcock has served as a director of Sopheon from its inception in
1993. Since 1982, Mr. Silcock has been a principal partner of Lawfords & Co. and a director of Lawfords Ltd.,
chartered accountants. Mr. Silcock was a non-executive director of Brown & Jackson plc. for four years from June
2001 to July 2005 and currently holds a number of other directorships in the United Kingdom.
Bernard al, Non-executive Director. Bernard Al was appointed as director of Sopheon in January 2001. He is a
former chief executive officer of Wolters Kluwer in the Netherlands and has a background in science and linguistics.
daniel metzger, Non-executive Director. Daniel Metzger was until 1998 an executive vice president of Lawson
Software, a leading ERP provider, where he was responsible for corporate strategy and marketing. Since then he has
held similar roles at Parametric Technologies, where he led the business strategy and marketing around collaborative
product development technologies, and at nQuire Software, which was subsequently sold to Siebel.
ronald helgeson, Vice President of Corporate Communications. Ronald Helgeson has served as vice president of
corporate communications for Sopheon since 2000. He previously held senior marketing-management roles with
Teltech Resource Network Corporation and 3M Company.
paul heller, Chief Technology Officer. Paul Heller was appointed chief technology officer in June 1999. He was
previously vice president of product management for Baan Company.
huub rutten, Vice President of Product Research and Design. Huub Rutten is responsible for Sopheon’s healthcare
business in the Netherlands and also has responsibility for product research. A founder of Sopheon, he was a director
until September 2000 when he assumed a more operational role.
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